Indian stock market ready for a dream run, target Nifty 50 at 25,816, says PL; bullish on Auto, Banks, Defence, FMCG

Indian stock market indices, Sensex and Nifty 50, are trading around record high levels after witnessing heightened volatility amid the Lok Sabha election results 2024 and strong selloff by overseas investors. However, the heavy foreign institutional investors (FII) outflow was countered by SIP-led domestic buying, which negated the impact.

With the elections-related uncertainty now seeming to be over, we have a National Democratic Alliance (NDA) government in place with the support of around 300 members of Parliament; analysts believe the success of Bharatiya Janata Party (BJP) and Prime Minister Narendra Modi in running an alliance government will be at test, although continuity in key ministries is a positive.

Amnish Aggarwal, Director – Research, Prabhudas Lilladher expects the NDA government to sustain its focus on capex led growth around PLI, Roads, Ports, Aviation, Defence, Railways and Green energy given 20 bps lower fiscal deficit in FY24, normal monsoons and ₹2.1 lakh crore dividend from the Reserve Bank of India (RBI).

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“However, we expect the NDA govt to increase focus on Farmers, Rural, urban poor and middle class to arrest the impact of new social engineering cum freebies led reversal in certain states in recent elections,” Aggarwal said in a report.

He remains positive on Auto, Banks, AMCs, Capital Goods, Defence, Hospitals, Pharma, Cement, Aviation, and Discretionary consumption.

Aggarwal believes a progressive Union Budget, normal monsoons and strong inflows will further re-rate markets.

In the fourth quarter of FY24, Travel, Chemicals, HFC and Media companies had maximum beat in sales, while Telecom and Oil & Gas were significantly below estimates. Banks, Capital Goods, Cement, Chemical and Media had a maximum beat in EBITDA while Building materials, Telecom and Consumer missed on EBITDA. Cement, Capital Goods, Chemicals, Oil and Gas and Travel had max beat on PBT while PBT miss was max for Media, metals and consumer, according to a market strategy report by Prabhudas Lilladher.

Also Read: Nifty 50 hits a fresh record high: Can it touch 24,000 before the Union Budget 2024?

Nifty 50 is currently trading at 19.2x 1-year forward EPS (earnings per share), which is at par with 15-year average of 19.2x. PE has moved up from 18.2 to 19.2 in the last 2 months.

In its base case, the brokerage firm values Nifty at 15-year average PE (19.2x) with March 2026 EPS of ₹1,344 and arrives at a 12-month target of 25,816 from 25,810 earlier. In its bull case, it values Nifty at 5% premium to 15-year average PE 20.2x and arrives at a bull case target of 27,102 from 27,100 earlier.

In the bear case, the brokerage firm expects Nifty to trade at 10% discount to LPA with a target of 23,235.

Model Portfolio

In its Model Portfolio, Prabhudas Lilladher cuts weights on Hindustan Unilever, Titan Company, Infosys, and Bajaj Finance while increasing weights behind HDFC Bank, Larsen & Toubro, InterGlobe Aviation, Sun Pharmaceutical Industries, LTI Mindtree, Reliance Industries and Bharti Airtel. It is adding Ambuja Cements and removing Delhivery.

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The brokerage firm is overweight on Auto, Banks, Capital Goods, Consumer, Healthcare, Telecom and underweight on IT, Metals, Diversified financials and oil and Gas. It turns equal weight on cement.

High Conviction Picks

It has removed Safari Industries, Navneet Education and Grindwell Norton from its Conviction picks and has added BEML (strong play on defence and railways) and ITC (steady outlook, budget unlikely to be nasty) in conviction picks.

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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.