ICICI Securities said stocks look set to climb the 'wall of worry' in 2025, as the bull-market environment may persist, thanks to a bounceback in domestic cyclical sectors after re-emerging from the effects of an election slowdown in 2024. It sees the recent dollar strength to weaken, sees inflation moderating and expects current account deficit to remain comfortable for India.
"We believe 5 per cent earnings yield is fair value for Indian equities which translates to 20 times forward EPS and a Nifty target for 2025-end at 26,300," ICICI Securities said.
The domestic brokerage said Donald Trump’s victory euphoria may reverse, as it did in 2017 when dollar index reversed gains post the initial euphoria. The US bond yield spike this quarter is unlikely to sustain as inflation trajectory is conducive, it said.
"Given the ample water reservoir levels and normal weather conditions, food prices could start receding led by increased supply (CPI dips to 5.5 per cent in November) while 2025 growth is likely to revive as election and severe weather conditions start to recede while CRR cut of 50 bps to provide a liquidity boost," it said.
The brokerage believes the interest rate cuts could be delayed as interest rate spread over US remains the lowest in recent history and Trump policies appear inflationary. "Also, despite the expected drop in food prices, overall inflation could remain elevated as growth picks up amidst signs of pick up in commodity prices," it said.
ICICI Securities said current account deficit remains comfortable at 1 per cent of GDP along with forex reserves of $660 billion covers the entire external borrowing and 11 months of gross import bill.
2025 stock picks ICICI Securities likes services, discretionary consumption and healthcare themes. It prefers Bharti Airtel Ltd, InterGlobe Aviation (IndiGo) Ltd, ITC Ltd, Mahindra & Mahindra (M&M), Infosys, Kajaria, Signatureglobal, LemonTree, Aurobindo Pharma and Piramal Pharma.
Among industrials, it likes Larsen & Toubro (L&T), BHEL, Tata Power Company Ltd, NTPC Ltd, JSW Steel Ltd, JSPL, Ambuja Cements Ltd, GAIL Ltd, HPCL, Navin Fluorine an Solar Industries.
In the financial sector, ICICI Securities has a liking for HDFC Bank, SBI, Bajaj Finance, SBI Life and Angel One.
ICICI Securities said the capex-driven stocks from infra, manufacturing, commodities and utilities etccould be the biggest beneficiaries of revival in investment demand in 2025. Also, there are signs of bottom formation and recovery in commodity prices such as cement, metals, oil along with gross refining margins of oil companies, it said.
"Apart from the aforementioned traditional sectors, current capex cycle may have additional drivers in the form of new-age sectors such as data centres, AI infrastructure, EVs, EMS manufacturing, green energy etc," it said.
Empirically, it is impossible to have a rising GDP trajectory driven by capex cycle without re-leveraging cycle in the economy, hence, this area (large banks) may provide maximum alpha as valuations remain reasonable due to scepticism. In general, financial services including capital market players may benefit, it said.
"Affluent household spend on discretionary consumption may continue to rise structurally in sectors such as auto, retail, leisure, travel, property, gaming, entertainment, internet, etc," it said.