While retaining its bullish view on Indian equity markets, brokerage PL Capital expects the benchmark NSE Nifty index to touch 27,867 in the next 12 months in the base case scenario, indicating an upside of nearly 12% from the current 24,945.
In its latest India Strategy Report, PL Capital stated that Nifty is currently trading at 19.4 times the 1-year forward EPS (earnings per share), representing a 1.6% premium over its 15-year average PE (price-to-earnings) of 19.1 times. In the bull case, PL Capital applied a 5% premium to the 15-year average PE, valuing Nifty at 20 times, leading to a bull case target of 29,260 (previously 28,564). On the other hand, it sees Nifty at 25,080 in the bear case scenario.
The financial services firm believes that capital goods, infrastructure, ports, EMS, hospitals, tourism, new energy, e-commerce and telecom are emerging sectors to watch out for, provided they are available at the right valuations. PL Capital further added that the market and street estimates are already priced in a strong demand rebound during the upcoming festival and wedding seasons and any disappointment in demand during this period could lead to further downward revisions in EPS estimates.
“Nifty EPS has been revised down by 3.8% and 2.8% for FY25 and FY26,” PL Capital said. However, it sees strong EBIDTA growth in the hospitals, pharma, capital goods, and chemicals sectors, with auto, banks, and durables also likely to post double-digit growth.
“Rural demand for staples is showing signs of recovery, though Q2 results may reflect some impact from prolonged rains. Discretionary spending remains positive in areas like travel, housing, jewellery, and two-wheelers, while passenger vehicles (PV), quick-service restaurants (QSR), apparel, footwear, and building materials are still facing challenges,” the brokerage said.
It also added that infrastructure spending and project ordering have picked up, but FY25 is likely to be volatile due to upcoming elections in Maharashtra, Jharkhand, and Delhi.
“The market has shifted in favour of defensive sectors as the valuations in many cyclicals have become quite expensive, even after accounting for sustained growth,” PL Capital said.
It also highlighted that the return variation between large-cap and mid-cap indices has narrowed significantly over the past three months. “The difference in returns between large cap and small cap indices is now less than 1% for the three-month period, though the gap remains substantial over the six- and twelve-month periods,” the brokerage said.
PL Capital removed Siemens, Praj Industries, Apar, and Lupin from its high conviction picks after the recent rally in stock prices, although it is positive on these names from medium to long term. On the other hand, PL Capital added Bharat Electronics, Crompton Consumer, Cyient, JB Chemicals, Jindal Stainless and Safari in conviction picks.