In their October 2022 report, analysts Amnish Aggarwal and Anushka Chhajed at Prabhudas Lilladher said, “Indian markets are currently on a roll and global ones are drawing on strong domestic fundamentals, driving inflation to the highest level 15-20 year highs in the most developed markets Therefore, the hawkish stance of the FED and other central banks is likely to push interest even higher in the coming quarters. growing fears of a recession in the United States and Europe.”

This week, on Friday, Nifty 50 closed at 17,314.65 down 17.15 points or 0.1%. However, overall during the week, the benchmark has risen by more than 3%.

Although there has been a significant correction in the prices of Crude Oil, Metals, Palm and various Agri commodities, analysts Prabhudas Lilladher do not rule out intermittent spurts in the coming months.

“We expect the global macroeconomic situation to remain volatile in the next 3-6 months unless Russia’s war in Ukraine ends,” the analysts note.

On monetary policy, RBI has increased the repurchase rate by a cumulative 190 basis points for the fourth consecutive month. Currently, the policy repo rate is at 5.9%. The rate hike is in line with US rates. However, the gap between 10-year T-Bills in India and the US has fallen to a 13-year low.

The brokerage analysts note said, “We believe that slowing global growth and volatility may put further downward pressure on INR in the coming months. Domestic demand remains firm in discretionary segments though no significant reversal in demand has been shown rural in the trend so far. While RBI expects inflation to moderate in the next few quarters (currently ruling above the ceiling), we are cautious about the same global headwinds and liquidity pressures.”

A festive season to set a path for strong growth in the second half of the current fiscal.

“Our channel checks indicate strong demand for stones in the first normal festive season after 2 years. We believe a strong festive season will set the stage for strong growth in 2H,” the note said.

According to the note, the analysts continue to believe that the structural story is led by 1) IT services with strong global demand 2) expected gains from China + 1 supply chain realignment in Pharma, Chemicals, Textiles, etc. 3) increased visibility of CAPEX across Infra ublic (Rs1400 billion), PSU’s, PLI (Rs220 billion), Defence, Digitization and Data Centers.”

Hence, Prabhudas note said, “We expect the current state of volatility to be temporary and recommend accumulating strong fundamental stocks for medium and long-term gains.”

Setting a base target of 20,936 for Nifty 50, the analyst note said, “We estimate NIFTY EPS at 855.2 and 963.4 and FY25 EPS is brought in at 1069.2. This indicates a growth of 12.1 / 12.7 / 11.0% for FY25/24. 3.5% and 5.6% and 8.3% below consensus EPS estimates. NIFTY is currently trading at 19x one-year forward PE, which is a 7.8% discount to the 10-year average of 20.5.”

So, in their original target, the analysts’ note said, “we value NIFTY at last 10-year average PE of 20.5x on Sept24 EPS of Rs1016, and we reach NIFTY’s Sept 23 target of 20936 (earlier 20057). “

It is worth mentioning, the Nifty 50 has the potential to reach the 22,918 mark. The stock brokerage has raised its target in the bullish scenario, adding, “we value Nifty at a 10% premium to 10-year average PE (21.5x) and assign a target of 22918. (earlier 22063).”

But in a bear case, Prabhudas Lilladher has valued Nifty 50 at a 20% discount to the 10-year average and reached a target of 15800 (earlier 16046).

Where to invest in the stock market?

Banking stocks:

Prabhudas Lilladher analysts are overweight on banking stocks. The note said, “We remain overweight on Banks by 220bps (earlier 310bps) on multiple higher credit growth and expected increase in NIM in case of rising interest rate. We maintain overweight on all front line banks like HDFC, ICICI, Kotak , SBI. , and Axis Bank. We tinker a bit with our weights in KMB and SBI by 50bps and 20bps.”

HFC/NBFC:

The stock brokerage is overweight in this basket.

The note added, “We remain underweight on NBFC. We reduce the weight on HDFC by 70bps but increase the weight on BAF by 20bps. However, we believe there is a risk of P/BV derating for BAF if it is asked to be converted into a bank at a certain point.”

Health care:

A heavy path has been set for this sector. In the report, the analysts said, “We remain overweight on Healthcare and increase the weight on Cipla by 20bps on improved growth prospects in US inhalers, Revlimid linked upside. We remain structurally positive on leading Hospital chains, due on the incidence of insurance and rising health awareness.”

IT Services:

Giving an overweight view on the segment, the note said, “We remain overweight (260bps) on IT even as we cut weights by 100bps. We believe order books remain healthy and there is no tooth for the long-term growth story in ERP, Data Analytics, Digital, Artificial Intelligence, supply chain, etc. We believe that near-term margin pressures are temporary and we do not expect any meaningful impact on the growth trajectory of Indian IT players due to the expected recession / slowdown in the US.”

Car:

The analysts kept 220 bps overweight on autos as they expect the current cyclical recovery to last for the next 2-3 years.

“We believe that the positives such as easing of semiconductor issuance, reduction in commodity prices, and strong pent-up demand.

growth rates. However, we believe players with higher exposure to the US and Europe may underperform in the short term,” the note said.

Consumer:

Analysts are overweight here by 300 bps as the recent up period has reduced the expected benefits from the commodity price

price was on a correction even as volume growth remained lackluster in staples.

An analyst note said, “Discretionary segments are outperforming due to strong pent-up demand in QSR, Apparel, Travel, etc. We continue to prefer consumer discretionary stocks over staples over the next 2-3 periods.”

Capital Goods:

They increased their overweight in this sector to 360 bps and expect the industry to report strong growth over the next 3-5 years.

In addition to leading stocks, the note said, “we expect meaningful gains in consumables stocks in this universe. We keep L&T, Siemens, and ABB in our model portfolio.”

Oil and Gas:

Prabhudas analysts have maintained an underweight on oil and gas and have further maintained the allocation to one Trust in this universe.

Telecommunications:

The stock brokerage has included Bharti Airtel in its flagship portfolio as a structural play on the increasing use of data in Ecom, Infotainment, etc and is expected to witness sustained growth in the coming years.

Disclaimer: The opinions and recommendations made above are the opinions of individual analysts or brokerage firms, and are not the opinions of Mint.

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