Nifty target raised, to top 20000 soon; RIL, ICICI Bank among top stock picks by this brokerage

NSE Nifty 50 index target has been raised to 20,057 by analysts at domestic brokerage and research firm Prabhudas Lilladher. Analysts see multiple tailwinds for stock markets, barring the near-term volatility. “Festival demand from urban middle class is expected to remain strong, which will enable good 2Q and 3Q will show benefits of correction in commodities. We suggest accumulating fundamentally strong companies with business moats in uncertain times,” analysts said in a note. Nifty 50 index has climbed 14% from the lows on June helped by positive foreign fund inflows. The target price set for June 2023 by Prabhudas Lilladher would see Nifty 50 rise 15% from current levels. 

Base, bull, and bear targets

Prabhudas Lilladher noted that Nifty EEPS has seen only minor tweaks in the current quarter with 13.2% EPS CAGR over FY22-24 with FY23/24 EPS of Rs 857.9 and 978.4. “Our estimates are lower than consensus by 3.9/5.0% for FY23/24. NIFTY is currently trading at 19.9x 1-year forward EPS which is at 5% discount to 10 year average of 20.5x,” they said. In the last three corrections, the Nifty 50 index, has bottomed out around 10-year average PE except in March 2020, when it bottomed out at 23% discount to the 10-year average. 

In the base case scenario, analysts value Nifty 50 at 10-year average PE (20.5x) with March 24 EPS of 978.4 and arrive at June 23 target of 20,057. This has been upped from 19,066 that Prabhudas Lilladher had set earlier. However, the bull case target is much higher, pegging the 50-stock index at 22,063 against 21,073 — the previous bull case target. Here, Nifty is valued at 10% premium to 10-year average (22.6x).

Bear case scenario would see Nifty trading at 20% discount to LPA with a target of 16,046 (15052 earlier at 25% discount). “We remain positive on India growth story given strong tailwinds and expect steady returns with stock specific approach,” analysts said.

Tailwinds galore

While issues such as geo-political tensions, inflation in India and major economies, and Rural slowdown continue to clamp down on growth, there are plenty of positives ahead. Prabhudas Lilladher highlighted that India has been able to keep another covid wave at bay — a positive for the economy and markets. “Normal monsoons, firm crop and dairy prices to enable eventual pick up in rural demand, timing remains a tad uncertain due to inflation. Correction in global commodity prices led by crude, Agri commodities and freight costs can provide some relief from imported inflation,” they added.

High-frequency indicators are also signalling a strong momentum with GST collections showing 13.5% CAGR. Analysts noted that July GST Collection growth was at 28% YoY and compensation cess at 40% (on strong base) — indicating sustained momentum.

The return of Foreign Institutional Investors (FII) is aslo a shot in the arm for domestic markets. “FII flows turned positive with Rs 500 billion positive number in the past 5 weeks on recovery in global markets and cool off in commodities on fears of recession impacting demand in US and Europe,” they said. Cooling commodity prices have also aided the momentum. “We believe normal monsoons, strong discretionary demand and softening global commodities should enable markets to sustain recovery in coming quarters.”

Which stocks to buy?

Prabhudas Lilladher is overweight on Banks, Auto sector stocks, and Capital Goods. “We expect markets to consolidate and build on recent gains in coming months, although near-term volatility can’t be ruled out. We believe Auto, Capital Goods, Defense, Real estate, Insurance, Hospitals, Travel, QSR and Retail will be among key wealth creators in coming years.” they said. 

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Large-cap stock picks: Reliance Industries, ICICI Bank, Avenue Supermarts, Larsen & Toubro, Sun Pharma, Mahindra & Mahindra, and Apollo Hospitals Enterprise.

Mid-cap stock picks: Ashok Leyland, Crompton Greaves Consumer, and Endurance Technologies.

Small-cap stock picks: Westlife Development, VIP Industries, Inox Leisure, Navneet Education, and Nazara Technologies.