Nifty 50 target raised to 25,683; HDFC Bank, SBI, Dabur among 19 high-conviction stock picks by InCred Equities
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Indian stock market recouped its losses after the Lok Sabha Elections-led volatility and the benchmark indices, Sensex and Nifty 50, started scaling new highs. Defence, realty, automobile, capital goods and metal are the key sectors driving the outperformance since April 2024. On the other hand, IT and pharma are the laggards.
Domestic brokerage firm InCred Equities expects high volatility in the index to continue, considering the wide swing in the sentiment with a coalition government at the Centre and global volatility.
However, factoring in improved tailwinds from macroeconomic factors, above-normal rainfall outlook and continuity of pro-reform oriented party’s rule, the brokerage firm raised its bull-case probability from 20% to 25%, upgrading the Nifty 50 target to 25,683.
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“Factoring in favourable macroeconomic tailwinds, leading to an upgrade in our blended Nifty-50 target to 25,683 (from 24,084 earlier). The preference for large-caps remains. We have added defensive stocks to our high-conviction ideas list and removed policy-risk stocks in the defence sector," InCred Equities said.
Nifty 50 index valuation has been around the 10-year mean level of 20x one year forward P/E for the last six months. The brokerage firm prefers to look at a 10-year basis, as India emerges to drive global GDP growth with proactive policies.
The major index earnings have been broadly maintained post 4QFY24 results, with mid-teen earnings growth. Major inflow of funds continues to favour mid- and small-cap stocks’ performance, it noted.
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In the quarter ended March 2024, Nifty 50 companies’ posted an impressive 19% YoY growth in net profit, driven by an improved 10% sales growth. Q4 results were marginally above expectations. FY25F-26F Bloomberg consensus Nifty 50 PAT CAGR of 12% is expected to be driven by telecom, consumer staple, materials, consumer discretionary and capital goods sectors.
“Strong macroeconomic tailwinds and FY25F-26F EPS growth outlook of 12% remain intact, favouring utility, consumer and capital goods sectors. We stay constructive on markets and look for policy action & priorities in the budget slated end-July 2024," said Pramod Amthe and Ravi Gupta of InCred Equities.
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Investment Themes
In its high-conviction stock ideas for CY24, InCred Equities has 19 stocks with an ‘Add’ rating. These high-conviction stock picks include Aditya Birla Sunlife AMC, Ajanta Pharma, Ashok Leyland, Aurobindo Pharma, BCL Industries, Bharat Forge, Container Corporation of India, Cyient DLM, Dabur India, Globus Spirits, HDFC Bank, Mahindra & Mahindra Finance, Maruti Suzuki, Shriram Finance, Skipper, Spandana Sphoorty Financial, State Bank of India, Tech Mahindra and Zydus Lifesciences.
“We dropped Titan Company and introduced Dabur India in the consumer sector. We removed Bharat Electronics and Data Patterns in the defence sector as they reached our target prices and the policy risk stands undermined. We added Zydus Lifesciences in the pharmaceutical sector, improving the defensive stocks’ weightage in the portfolio. We dropped APL Apollo and Camlin Fine Sciences for management/ execution challenges," Amthe said.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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