Nifty50 target raised to 25,683; HDFC Bank, SBI, Dabur among 19 high-conviction stocks picked by Incred Equities

The Indian stock market has recovered its losses after the volatility caused by the Lok Sabha elections and the benchmark indices, Sensex and Nifty 50, have started hitting new highs. Defence, realty, automobiles, capital goods and metals are the key sectors expected to outperform from April 2024. On the other hand, IT and pharma are lagging behind.

Domestic brokerage firm Incred Equities expects the index to continue to witness high volatility given the broad shift in sentiment due to the coalition government at the Centre and global volatility.

However, considering better tailwinds from macroeconomic factors, possibility of above-normal rainfall, and continuation of pro-reform party rule, the brokerage firm has raised its upside outlook to 25% from 20% and raised Nifty50 target to 25,683.

Also read: MOSL gives multi-asset investing advice after election results: What it suggests for equities, gold, fixed income

“Considering the favourable macroeconomic tailwinds, we have raised our blended Nifty50 target to 25,683 (from 24,084 earlier). Preference for large-caps remains. We have added defensive stocks to our list of high-conviction ideas and removed policy-risk stocks in the defence sector,” Incred Equities said.

For the last six months, the valuation of the Nifty 50 index has been around the 10-year average level of 20x one-year forward P/E. The brokerage firm prefers to look at a 10-year basis as India emerges to drive global GDP growth with proactive policies.

Index earnings remain broadly bullish following Q4 FY24 results, which recorded moderate earnings growth. Large inflows of funds continue to favour the performance of mid-cap and small-cap stocks, the report said.

Also read: India overtakes China (in stock performance)

In the quarter ended March 2024, Nifty 50 companies reported an impressive 19% rise in net profit, driven by improved sales growth of 10%. Q4 results marginally beat expectations. FY25F-26F Bloomberg consensus Nifty 50 PAT CAGR of 12% is expected driven by telecom, consumer staples, materials, consumer discretionary and capital goods sectors.

Pramod Amthe and Ravi Gupta of Incred Equities said, “Strong macroeconomic tailwinds and FY25F-26F EPS growth outlook at 12% remain intact, favouring the utility, consumer and capital goods sectors. We remain constructive on the markets and expect policy action and priorities in the Budget to be presented in late July 2024.”

Also read: Expert opinion: Market wants clarity on government spending plan; interest rate cut cycle may turn shallow: Purnarth K Khanna

Investment Themes

In its high-conviction stock ideas for the year 2024, Incred Equities has given 'Add' rating to 19 stocks. 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 Sphoorthi Financial, State Bank of India, Tech Mahindra and Zydus Lifesciences.

“We removed 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 price and policy risk reduced. We added Zydus Lifesciences in the pharmaceutical sector, thereby increasing the weightage of defensive stocks in the portfolio. We removed APL Apollo and Camlin Fine Sciences for management/execution challenges,” Amthe said.

Disclaimer: The views and recommendations expressed above are those of individual analysts or broking companies and not that of Mint. We advise investors to check with certified experts before making any investment decisions.