The domestic brokerage values Nifty at a 15-year average PE (19.1x) with Sept 26 EPS of 1,434 and arrives at a 12-month target of 27,381 (27,867 earlier), while in a bull case scenario, it values Nifty at PE of 20.1x and arrives at a bull case target of 28,750 from an earlier 29,260.
The benchmark index has been down 6% since October 12 — an apparent impact of Rs 72,000 crore FII selling amid Donald Trump’s victory in the US presidential election, sustained geopolitical uncertainty, strength of USD and softening of gold prices.
“Demand conditions remain mixed with a steady uptick in rural demand given low base and normal monsoons. However, rising inflation is affecting demand in urban India (yet to play out fully), more so in metros and big cities, which account for ~35% of the total demand in the economy. All hopes now rest on the demand surge in festival and wedding season,” stated the report.
PL Capital expects an interest rate cut only after budget as the spike in food inflation to 10.9% (CPI increase to 6.2%) takes it much above the comfort level of the RBI. The broking firm suggests a stock-specific approach given the tepid demand scenario. PL Capital believes capital goods, infra, EMS, hospitals, pharma, tourism, auto, new energy, e-com, jewellery are good themes to play at current valuations.
Also read: HDFC Bank’s m-cap surpasses Rs 14 lakh crore for the first time after stock hits record highGoing ahead, the domestic brokerage foresees three factors that can support growth:
- Results of the recent polls in Maharashtra, Haryana, UP and Bihar have consolidated the position of the ruling NDA, which will provide much-needed stability and resolve to push for reforms.
- Trump 2.0 is likely to see some reduction in global wars, lesser geopolitical uncertainty and stable crude prices.
- Revival expected in government capex as 2Q capex has turned positive and 1H capex is only 37% of FY25 BE.
As far its conviction picks are concerned, PL Capital is removing BEML, IndusInd Bank, J.B. Chemicals & Pharmaceuticals and RR Kabel given near-term headwinds in RR Kabel and IndusInd Bank, stake sale uncertainty in JB Chemicals and poor performance from BEML.
It has added Lupin, Polycab India, Aster DM Healthcare, DOMS Industries and Triveni Turbine as conviction picks.
Meanwhile, the firm is also cutting weightage on Hindustan Unilever, ITC, Nestle India & Reliance Industries, removing L&T Technology Services, Astral, IndusInd Bank from the model portfolio, and adding Polycab.
PL is increasing weightage on L&T, Britannia, Titan, ICICI Bank, HDFC Bank, Infosys, LTIMindtree and Ultratech Cement.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)