Nifty 50 may continue to scale new milestones over the next 12 months, taking the index to a record high of 17,250 by June 2022, said domestic brokerage and research firm ICICI Securities in a report. Analysts at ICICI Securities believe that improving profits of India Inc. along with a conducive environment for capital expenditure cycle would help the benchmark index grow and reach fresh all-time highs. So far, since the March 2020 fall, Nifty 50 has more than doubled to reach an all-time high of 15,901 this week.

Improving net profit to GDP

“Quarter 4 of the financial year 2021 is turning out to be the fourth consecutive quarter of earnings beat exceeding misses, which has resulted in PAT/GDP rising further to 2.8% despite an upward revision to FY21 GDP base,” ICICI Securities said in the report. The net profit to GDP ratio is climbing from a two-decade low level of 1.6%. For the broader Nifty 200, the ‘Look through earnings’ have risen sharply by 120% driven by cyclicals in the January-March quarter. Sectors such as metals, cement, building material, capital goods, and autos have posted strong quarterly results.

Environment conducive for capex cycle

On the economic front, ICICI Securities highlighted that the latest GDP print indicates economic recovery is led by investments as the real investment rate rose to a 2-year high of 34.3% driven by robust construction and manufacturing sector along with higher government spending. “Construction (14.5% YoY), manufacturing (6.9% YoY) and electricity (9.1% YoY) growth were robust in Q4FY21 as evidenced by GDP print, corporate results and robust merchandise exports,” they added. Further, the expansion of PMI manufacturing has been positive so far this fiscal and GST collections are improving. “We believe the environment for capex cycle is turning conducive at a macro level,” the report said.

Declining real interest rates, ample availability of financial resources for corporates for boosting investments as demand revives, countercyclical fiscal policy, conducive policy for boosting manufacturing, robust global demand, and buoyant commodity cycle are some of the positive chalked out by ICICI Securities in favour of capital expenditure. 

Top stock picks

Talking stocks, the brokerage firm has listed out 14 shares as its top picks. These include financials, industrials, and even auto stocks. These are SBI, Axis Bank, HDFC Bank, NTPC, PTC India, L&T, Ultratech, Bharti Airtel, Tata communications, GAIL, Tata Motors, TVS Motors, Motherson Sumi, and Jyothy Labs.

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