Stock market crash: Prabhudas Lilladher cuts Nifty 50 year-end target to 27,381, recommends ‘buy on dips’ for long term
- Stock market crash: Prabhudas Lilladher has cut its base case Nifty target to 27,381 from 27,867 earlier on Nifty EPS cut by 0.5/2.0/1.5 for FY25/26/27 and recommends selective buying on dips for long-term gains.
Stock market crash: Amid the current stock market correction due to headwinds, domestic brokerage Prabhudas Lilladher Ltd has cut the year-end target of the domestic equity benchmark Nifty 50 to 27,381 and suggested selective ‘buying on dips’ for long-term gains. According to analysts at the brokerage, Indian markets are on course, but headwinds have yet to peak.
"The firm has cut its base case Nifty target to 27,381 (27,867 earlier) on Nifty EPS cut by 0.5/2.0/1.5 for FY25/26/27 and recommends selective buying on dips for long-term gains," said the domestic brokerage. Demand conditions remain mixed with a steady uptick in rural demand given low base and normal monsoons. However, the brokerage believes rising inflation is affecting demand in urban areas (yet to play out fully), especially metros and big cities, which account for 35 per cent of the total economy's demand.
The brokerage expects an interest rate cut only post-budget as the spike in food inflation to 10.9 per cent and retail inflation at 6.2 per cent is much above the Reserve Bank of India (RBI)'s comfort level. Given the tepid demand scenario, the broking firm suggests a stock-specific approach.
Prabhudas Lilladher's top stock picks
The benchmark index Nifty 50 is down six per cent cut since October 12, showing the impact of foreign outflow worth ₹72,000 crore amid Donald Trump’s victory in the US presidential elections, sustained geopolitical uncertainty, strength of the US dollar and the softening of gold prices. Analysts say capital goods, infra, EMS, hospitals, pharma, tourism, auto, new energy, E-commerce, and jewellery are good themes for current valuations.
Among large-cap stocks, the brokerage's top stock picks are Ambuja Cement, Bharat Electronics, Bharti Airtel, HDFC Asset Management Company, ICICI Bank, InterGlobe Aviation, Larsen & Toubro, Lupin, Mahindra & Mahindra, Max Healthcare Institute, Polycab India, Reliance Industries, and Titan Company.
The top mid- and small-cap stock picks among mid- and small-caps are Aster DM Healthcare, Crompton Greaves Consumer Electricals, Cyient, DOMS Industries, Jindal Stainless, Lemon Tree Hotels, Safari Industries (India), and Triveni Turbine.
Headwinds and tailwinds for near-term growth
According to Prabhudas Lilladher, the three factors that can support growth in the near term are as follows:
1) Results of recent state/by-elections in Maharashtra, Haryana, UP and Bihar have consolidated the position of the ruling NDA, which will provide much-needed stability and resolve to push for reforms.
2) According to analysts, the Trump 2.0 administration will likely see some reduction in global wars, less geopolitical uncertainty and stable crude oil prices. Reduced volatility in oil markets will benefit energy-importing nations such as India.
3) FY25 has witnessed a significant slowdown in capex at the central and state levels, with general government capex contracting by 12.7 per cent in H1. "The expected revival in government capex as 2Q capex has turned positive, and 1H capex is only 37 per cent of FY25 BE," said the brokerage.
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According to the brokerage, the headwinds for growth are a slowdown in urban demand across the top 30 cities, high Inflation impacting demand and delay in interest rate cuts, growing freebies and populism across states that can impair capex spending and geopolitical uncertainties in the Middle East, Ukraine and Southeast Asia.
On the other hand, the tailwinds for growth include India remaining the fastest-growing economy with the GDP growth likely at seven per cent in FY25, normal monsoons with a gradual uptick in rural demand, 2H25 capex push on infra, PLI, defence, railways, energy, and improved government stability post-state elections in Haryana, Maharashtra, UP, and Bihar.
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Nifty 50 EPS target and high conviction stock picks
Nifty EPS has seen a cut of 2.4 per cent and 2.9 per cent since January 2024. However, it has been in an upgrade cycle since October 2022, when Nifty EPS was introduced at 1,069 and rose to 1,251 by July 2024. From July until now, the cut in EPS has been 4.6 per cent and 5.1 per cent for FY25/26. Even the recently introduced EPS for FY27 has seen a cut of 1.5 per cent.
"Nifty EEPS has seen a cut of 0.5/2.0/1.5 per cent for FY25/26/27 with 14.4 per cent CAGR over FY24-27 and EPS of ₹1,193/1,344/1,523. Our EPS estimates are lower by 0.5/3/4.6 per cent for FY25/26/27. Nifty is trading at 18.1x 1-year forward EPS, at a discount of 5.2 per cent to a 15-year average of 19.1x," said the brokerage.
For a base case, the brokerage valued Nifty at a 15-year average PE (19.1x) with a September 2026 EPS of 1,434 and arrived at a 12-month target of 27,381 (27,867 earlier). For a bull case, the brokerage valued Nifty at a PE of 20.1x and arrived at a bull case target of 28,750 (29,260 earlier). For a bear case, the brokerage values Nifty can trade at a 10 per cent discount with a target of 24,643 (24,407 earlier).
In its model portfolio, Prabhudas Lilladher is cutting weights on Hindustan Unilever, ITC, Nestle India, and Reliance Industries. “We are removing L&T Technology Services, Astral, and IndusInd Bank from the model portfolio and adding Polycab. We are increasing weights on L&T, Britannia, Titan, ICICI Bank, HDFC Bank, Infosys, LTIMindtree and Ultratech Cement,” it said.
In its high conviction picks, the brokerage is removing BEML, Indusind Bank, J.B. Chemicals & Pharmaceuticals and RR Kabel given near-term headwinds in RR Kabel and Indusind Bank, stake sale uncertainty in JB Chem and poor performance from BEML. “We are adding Lupin, Polycab India, Aster DM Healthcare, DOMS Industries and Triveni Turbine in conviction picks,” said Prabhudas Lilladher.
On Thursday, domestic equity benchmarks Sensex and Nifty 50 posted their steepest declines in nearly two months, dragged down by heavyweight IT firms and as investors adjusted positions due to the expiry of monthly derivatives contracts. The NSE Nifty 50 fell 1.49 per cent to 23,914.15, while the BSE Sensex lost 1.48 per cent to 79,043.74.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
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