India’s equity markets may have delivered flat returns over the past two years, yet Nuvama, a brokerage firm, says valuations are still elevated and earnings expectations leave limited margin for disappointment.
In its latest strategy report, the brokerage has retained a defensive stance. It had assigned ‘Overweight’ ratings to Reliance Industries, HDFC Bank, Infosys, Kotak Mahindra Bank, Nestle India, SBI Life Insurance Company, Dr. Reddy’s Laboratories and Eternal while also backing select midcaps such as Coromandel International and APL Apollo Tubes.
Given the challenging macro setup, Nuvama said the broad investment philosophy in high-risk backdrop. The focus is ” to look for stocks/sectors where valuations reflect the risks.”
They are Overweight on sectors with “reasonable growth/valuation,” where “risks are priced in” and “defensive.” The firm expects about 19% earnings growth for the broader market but warns that risks from oil prices, weak demand and margin pressure could trigger downgrades, making stock selection crucial.
Reliance Industries remains ‘Overweight’ on diversified growth visibility
Nuvama has retained an ‘Overweight’ stance on Reliance Industries, citing its presence across energy, telecom and retail that supports earnings stability. The stock, trading near Rs 1,395, is expected to deliver steady growth supported by improving performance across segments.
The brokerage points to the strength of having multiple revenue drivers that reduce dependence on a single business. At the same time, it acknowledges that valuations remain elevated and performance could be sensitive to global energy trends and domestic consumption.
“Overall, from the discussion above the overall macro setup is challenging,” Nuvama Institutional Equities said.
HDFC Bank and private lenders move to ‘Overweight’ as valuations turn favourable
HDFC Bank has moved firmly into the ‘Overweight’ category as Nuvama sees the recent correction as an opportunity. Trading around Rs 841, the bank has faced pressure following merger-related balance sheet adjustments, especially around loan to deposit mismatches.
The brokerage believes the strength lies in its long-term franchise and ability to improve return ratios once the transition stabilises. The near-term concerns include margin pressure and slower growth.
“Post merger, the bank is working through a loans deposits mismatch that is compressing margins,” Nuvama Institutional Equities said.
The firm has also turned constructive on private banks more broadly as valuations have eased.
Infosys and IT added to ‘Overweight’ as risks are factored in
Infosys continues to feature in the ‘Overweight’ list, with Nuvama backing its stable earnings, strong cash flows and dividend payout. The stock, near Rs 1,250, offers relative comfort despite uncertainty in global technology spending.
Nuvama recognises risks from artificial intelligence affecting traditional outsourcing, but believes a part of this concern is already captured in valuations.
“AI posing threat to current business model but some of the risks are priced in,” the report said.
The brokerage has included information technology among sectors where risks are already reflected in prices.
Kotak Mahindra Bank and SBI Life strengthen ‘Overweight’ financial basket
Kotak Mahindra Bank and SBI Life Insurance remain part of Nuvama’s preferred financial picks, reflecting its tilt toward quality balance sheets.
Kotak Mahindra Bank, trading near Rs 370, is seen as a steady compounder with consistent profitability. SBI Life Insurance, around Rs 1,909, benefits from rising insurance penetration.
The strength for both lies in stable return profiles and relatively lower exposure to risky lending segments. The downside risk stems from broader economic pressure that could affect financial sector growth.
“With regard to other segments in BFSI, we think insurance offers value,” the report said.
Dr Reddy’s, Nestle and Havells anchor defensive ‘Overweight’ calls
Nuvama’s defensive positioning is visible in its ‘Overweight’ stance on Dr Reddy’s Laboratories, Nestle India and Havells India.
Dr Reddy’s, trading near Rs 1,277, offers earnings visibility backed by pharmaceutical demand. Nestle India, around Rs 1,213, continues to deliver strong return ratios despite slower volume growth. Havells India, near Rs 1,297, provides exposure to premium consumption.
The positives include stable demand and earnings resilience. The risks lie in elevated valuations that may limit upside.
“Large segments are undergoing industry transitions, nevertheless valuations remain expensive,” the brokerage said.
Eternal and internet plays see selective ‘Overweight’ despite high valuations
Eternal, trading around Rs 222, represents Nuvama’s ‘Overweight’ stance on internet businesses. The brokerage sees long-term growth potential even with high valuations.
This inclusion indicates a willingness to back growth-oriented companies with scalable models. The downside risk comes from elevated valuations and sensitivity to funding conditions.
“Our broad philosophy in such a high risk backdrop is to look for stocks where valuations reflect the risks,” Nuvama Institutional Equities said.
Midcap picks remain selective with focus on earnings visibility
Among midcaps, Nuvama has maintained selective ‘Overweight’ exposure to Coromandel International, APL Apollo Tubes, Motherson Sumi Wiring, Aarti Industries and Gravita India.
Coromandel International, around Rs 1,959, benefits from agricultural demand, while APL Apollo Tubes, near Rs 1,894, is supported by infrastructure demand. Motherson Wiring and Aarti Industries provide exposure to manufacturing and chemicals, while Gravita India is linked to recycling.
The strength lies in sector-specific drivers and earnings visibility, while the risks relate to broader market volatility and demand cycles.
“Our broad philosophy in such a high risk backdrop is to look for stocks where valuations reflect the risks,” the report said.
Metals downgraded to ‘Underweight’ on extreme valuations
Metals is the strongest negative call in Nuvama’s strategy, with the brokerage downgrading the sector to ‘Underweight’.
The firm notes that valuations are at two-decade highs while return ratios remain average, leaving little margin for error.
The positives such as supply disruptions are already priced in, while downside risks remain if global growth slows.
“Downgrade metals to ‘Underweight’ as its 20 year high valuations leave no room for error,” the report said.
Autos, industrials, PSU banks and NBFCs remain ‘Underweight’ on late cycle risks
Nuvama has maintained an ‘Underweight’ stance on autos, industrials, public sector banks and non banking financial companies, describing them as expensive cyclicals.
These sectors have delivered strong performance in recent years but are now operating at peak margins and valuations.
The positives include strong past earnings performance. The risks include margin normalisation and economic slowdown. “Some are at peak margins making them quite prone to macroeconomic risks,” the report said.
NBFCs remain expensive even as select names like Shriram Finance are included in the preferred list, indicating a cautious approach within the segment.
Narrow demand recovery and high expectations raise downside risks
Nuvama has raised concerns about uneven demand trends, with growth concentrated in a few sectors while others lag.
This raises questions about the sustainability of earnings growth, especially as expectations remain high. “Analysing the high frequency data suggests a very narrow pocket based recovery,” the report said.
The brokerage also noted that much of the earnings expansion in recent years has been driven by margins rather than demand.
“This poses large risks to earnings estimates,” it added.
Conclusion
Nuvama has built its India strategy around selective stock picking rather than broad exposure. Its ‘Overweight’ calls focus on companies with stable earnings and valuations that already factor in risks, while its ‘Underweight’ stance targets sectors where optimism remains high despite late-cycle conditions.
The brokerage sees limited comfort at the aggregate market level and prefers disciplined allocation toward defensives and select growth opportunities.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.