Prabhudas Lilladher has upped its 12-month Nifty target to 27,867 from 26,820 earlier (base case), implying an upside of 11.6 per cent from the current levels. Bull and bear case targets are 29,260 and 25,080, respectively. Nifty is currently trading at 19.4x, a 1.6 per cent premium over its 15-year average PE of 19.1x.
Capital Goods, Infrastructure, Ports, EMS, Hospitals, Tourism, New Energy, E-commerce and Telecom are emerging sectors to watch out, provided they are available at the right valuations. The brokerage believes 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’s estimated earnings per share (EPS) has been revised down 3.8 per cent and 2.8 per cent for FY25 and FY26, respectively.
Rural demand
The demand outlook from rural India is improving with normal monsoons and expectations of higher output, policy interventions in key crops for higher realisations and improved job scenario, as demand for work under MNREGA has gone down 15 per cent in the first five months of FY25, the brokerage said.
Strong EBIDTA growth is expected to continue 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, said the brokerage.
Discretionary spending remains positive in areas such as travel, housing, jewellery and two-wheelers, while passenger vehicles (PV), quick-service restaurants (QSR), apparel, footwear and building materials are still facing challenges. Sectors such as Auto, Capital Goods, Pharma and Hospitals are likely to report robust margin expansion, whereas Building Materials, Consumers, Media, Oil & Gas and Cement are expected to see a decline in margins.
State elections
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. With expectations of higher growth and lower risk, sectors like FMCG, IT Services, Pharma, and Consumer Durables have experienced a strong rebound,” the broker said in a note.
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 per cent for the three-month period, though the gap remains substantial over the six- and 12-month periods.