Prabhudas Lilladher sees Nifty at 22,584 in 12 months; lists top stock picks for model portfolio
Indian market has taken all headwinds in its stride and the action has been very stock-specific as Mid/small caps continue to outperform large caps, Prabhudas Lilladher stated. It lists its top large, mid and smallcap picks for model portfolio.
Indian benchmark index Nifty has been flattish in the past 6 weeks and gave just a 1.6 percent return in the past one quarter on the back of multiple headwinds. Moreover, strong DII flows have also been neutralized by FII outflows.
Still, the market has taken all headwinds in its stride and the action has been very stock-specific as Mid/small caps continue to outperform large caps, a report by domestic brokerage house Prabhudas Lilladher stated. Sectoral rotation is clearly visible as Realty, Metals, Power and Healthcare have joined the party, noted the brokerage.
"Festival season has seen high single-digit growth in sales of 2W/PV, 40-50 percent growth for online platforms, robust sales of Jewellery (despite high prices) and economic boost coming from cricket world cup (Alas, Bharat could win the title). However, demand trends in December are critical as FY23 had seen a sharp deterioration in demand post-Diwali. Capex recovery is on track with a strong performance from Capital Goods/ Infra segments and a strong outlook while bank balance sheets remain healthy. Odds are evenly balanced as headwinds emanating from firm US interest rates, El Nino impact on crops and inflation, volatile crude and geopolitical uncertainty still abound. NIFTY is not in a bubble zone as it is trading at a 17.2 percent discount to the 10-year average which provides comfort," PL pointed out.
Furthermore, India is on the verge of “Mother of all Elections” after having a stable Govt for the past decade, however state election results will dictate market momentum in run upto Lok Sabha elections next year, it added.
Amid this backdrop, the brokerage remains positive on Auto (PV), Banks, Capital goods, Hospitals, Discretionary and consumption. Also, in Q2, PL coverage universe's aggregate sales, EBIDTA and PBT grew by 0.7 percent, 36.6 percent and 73.9 percent YoY respectively as margins expanded 540 bps YoY and 340 bps QoQ.
Major Target Price Increase post Q2– Maruti, Ceat, Aarti, AXIS/ ICICI Bank, Supreme Inds, Voltamp, RR Kabel, Fortis/Max/NH Hospitals, JSL, IPCA, Lupin.
Major Target Price Cuts post Q2 – UPL, Sumitomo, Greenpanel, Guj Fluro, IGL, Bajaj Electricals, Westlife Food World, Reliance Ind.
Targets
Base Case: In this scenario, PL values NIFTY at 15% discount (17.3x) to 10-year average PE (20.4x) with Sept 25 EPS of 1302 and arrive at the 12-month target of 22,584 (22,819 based on 17.3x Sept 25 EPS of ₹1,316 earlier).
Bull Case: In this, the brokerage values NIFTY at a 7.5% discount to the 10-year average and arrives at the bull case target of 24,573 (24,833 earlier).
Bear Case: In the Bear case Nifty can trade at a 25% discount to LPA (25 percent earlier) with a target of 19,927 (20,135 earlier).
Model Portfolio: The brokerage remains overweight on Auto, Banks, IT services, capital Goods and Healthcare and Underweight on Metals, Cement, Consumer, Oil and gas and Diversified Financials.
In its model portfolio, the brokerage is increasing weight on Maruti, Cipla, Max Healthcare, Siemens, Titan Company, Avenue Supermarts while it cut weights on HDFC Bank, ICICI Bank, Ashok Leyland and Britannia.
High Conviction Picks: The brokerage has also added Max Healthcare, Hindalco, Eris Life, and Suntek Realty to conviction picks. Meanwhile, it also added Kajaria Ceramics and Restaurant Brands Asia as contra picks. Deepak Nitrite and Divi's Laboratories are its Contra sell picks.
On the other hand, PL has removed SBI, Carborandum, Chalet and Crompton Consumer from its portfolio.
Model portfolio
Largecaps: ABB India, Avenue Supermarts, HDFC Bank, Hindalco Industries, ICICI Bank, Maruti Suzuki, Max Healthcare, Reliance Industries, and Siemens
Mid/Small Caps: Can Fin Homes, Eris Lifesciences, Navin Fluorine International, Navneet Education, R R Kabel, and Sunteck Realty.
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 taking any investment decision.
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