Indian stock market indices, Sensex and Nifty 50, are seeing extreme market volatility led by rising geopolitical tensions in the Middle East, a bumper 50 bps interest rate cut by the US Federal Reserve and the outcome of state elections in India.
Brokerage firm PL Capital stated that the Nifty 50 is currently trading at 19.4x, 1-year forward EPS, representing a 1.6% premium over its 15-year average PE of 19.1x. In the Base Case, PL Capital values Nifty at its 15-year average PE of 19.1x, using a September 2026 EPS estimate of ₹1,459. This results in an increased 12-month Nifty target at 27,867 from 26,820 previously.
In the Bull Case, PL Capital applies a 5% premium to the 15-year average PE, valuing Nifty at 20x, leading to a bull case target of 29,260 from 28,564 earlier. In the Bear Case, it expects Nifty could trade at a 10% discount to its long-term average, with a target of 25,080 as compared with previous target of 24,407.
The brokerage firm believes Capital Goods, Infrastructure, Ports, EMS, Hospitals, Tourism, New Energy, E-commerce and Telecom are emerging themes to play, provided they are available at the right valuations.
“We believe markets and street estimates factor in strong rebound in demand in festival and marriage season, any disappointment on this front can result in further cut in EPS estimates on top of 3.8/2.8% cut in EPS for FY25/26. We rollover to Sept 26 and increase our base case NIFTY target to 27,867 (26,820 earlier). We remain cautiously optimistic with stock specific approach and advise avoiding FOMO (Fear of missing out) in current volatile times,” PL Capital said in a report.
It anticipates an EPS CAGR of 15% over FY24-27, with expected EPS values of ₹1,200, ₹1,371, and ₹1,546 for FY25, FY26, and FY27.
“The market has shifted in favour of defensive sectors as the valuations in many cyclicals have become quite expensive, even after accounting for sustained growth. With expectations of higher growth and lower risk, sectors like FMCG, IT Services, Pharma, and Consumer Durables have experienced a strong rebound.
The return variation between large-cap and mid-cap indices has narrowed significantly over the past three months. The difference in returns between large cap and small cap indices is now less than 1% for the three-month period, though the gap remains substantial over the six- and twelve-month periods, it noted.
On the earnings front, the brokerage firm estimates strong EBITDA growth to continue in the Hospitals, Pharma, Capital Goods, and Chemicals sectors, with Auto, Banks, and Durables also likely to post double-digit growth.
In its Model Portfolio, PL Capital is reducing weights in Capital Goods and Consumer and turning equal weight in IT services. It cut weights in IndusInd Bank, Siemens, Britannia Industries, and removed Carborundum Universal and Cipla from the model portfolio.
We are increasing weights in Kotak Mahindra Bank, Astral, Interglobe Aviation, Nestle India and Sun Pharmaceutical Industries. We add Bharat Electronics and HCL Technologies in the Model portfolio. We are overweight on Banks, Consumer, Capital Goods, Cement, Telecom and Healthcare, PL Capital said.
The brokerage firm adds Bharat Electronics, Crompton Greaves Consumer Electricals, Jindal Stainless, Safari, Cyient and JB Chemicals in its high conviction picks and removes Siemens, Praj Industries, Apar Industries and Lupin post sharp run up in these stocks recently.
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 making any investment decisions.
