Nifty 50 target raised to 26,736 led by hopes of interest rate cuts, rural & festival-driven recovery: InCred Equities

The improved hopes of interest rate cuts and the expectations of a rural and festival-led recovery in coming months is expected to drive Nifty 50 index above 26,700 level by the end of this financial year 2024-2025, analysts said.

The US Federal Reserve has indicated the commencement of a rate cut cycle from its September monetary policy and analysts expect the Reserve Bank of India (RBI) to follow the suit, especially with India’s CPI inflation easing in the last few months.

“This improves our bull-case probability to 30%, thereby increasing our blended Nifty 50 target to 26,736. The P/E valuation is comfortable on an absolute basis, being near the 10-year mean level but compared to other Asia markets, it is rich at +2SD,” said Pramod Amthe and Ravi Gupta, Research Analysts at InCred Equities.

The Nifty 50 Index’s valuation has been around the 10-year mean level of 20x one-year forward P/E for the last eight months. Analysts said they prefer to look at a 10-year basis, as India emerges to drive global GDP growth.

The major index earnings have been maintained post Q1FY25 results, with early-teen earnings growth. The high volatility in the index is expected to continue, considering the wide swing in sentiment after the coalition government at the Centre, global volatility and India’s rich valuation comparative to Asia, they said.

“Slow policy action by the central government under the Modi 3.0 regime is a cause of concern, especially considering the subdued government spending in the June 2024 quarter. Also, the policy action shifting towards winning assembly elections is also an area of concern,” the InCred analysts said in a research report.

The brokerage firm maintained its base-case, bull-case, and bear-case Nifty P/E targets at 22x, 20x and 18x, respectively.

With a higher probability of interest rates coming through on the back of the US Fed’s expected rate cut in September 2024, it raised bull-case probability to 30% and reduced the base-case probability to 60%. Hence, this led to an upgrade in its Nifty 50 blended target to 26,736 by the end of March 2025.

Sector and stock ideas

InCred Equities maintained its sector ratings, with an Overweight rating on aluminium, capital goods, cement, electronics manufacturing services or EMS and financial services.

In its coverage universe, the brokerage firm has upgraded the ratings of Britannia Industries, Marico, ABB India, Hero MotoCorp, LTI Mindtree and V-Guard Industries in recent weeks. It has downgraded Adani Ports & SEZ, Samvardhana Motherson International, IPCA Laboratories, Torrent Pharmaceuticals, Mahanagar Gas, Indraprastha Gas, and Orient Cement.

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