Nifty estimated to reach 25,810 by December 2024: Where should you invest?

Continuation of NDA Govt and La Nina led normal monsoons are expected to provide stability in policies and boost demand\ economic growth.

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Brokerage Prabhudas Liladhar predicts the stock market index Nifty to reach 25,810 by year-end, crediting continuation of the NDA government and La Nina led normal monsoons,  which are expected to provide stability in policies and boost economic growth. The brokerage is bullish on capital Goods, infrastructure, real estate, logistics/Ports, EMS, Hospitals, tourism, auto, new energy, e-commerce and telecom as potential investment themes this year.

Current Valuation: The Nifty index is currently priced at 18.3 times its expected earnings (EPS) for the next year. This is 3.7% lower than the historical average PE ratio of 19x over the past 15 years.

Base Case Scenario: Assuming the Nifty continues to trade at the 15-year average PE of 19x, and considering the estimated EPS of 1358 for March 2026, the  brokerage predicts the Nifty could reach 25,810 by December 2024. (An earlier estimate based on a slightly different EPS resulted in a target of 25,363).

Bull Case Scenario: In a more optimistic scenario, if the Nifty trades at a 5% premium to the historical average PE (20x), PL forecasts a bull case target of 27,100 (adjusted from an earlier prediction of 26,885).

Bear Case Scenario: If the market takes a downturn and the Nifty trades at a 10% discount to the 15-year average PE (17.1x), PL predicts a bear case target of 23,229 (increased from an earlier estimate of 22,066).

"Recently, Nifty reached its all-time peak, but subsequently experienced a correction of around 4 per cent attributed to escalating geopolitical tensions, fluctuations in crude oil and commodity prices, and differing perspectives on the anticipated interest rate adjustments by the US Federal Reserve. Concurrently, India is immersed in the General Elections, a pivotal event of this decade. Despite opinion polls forecasting a comfortable victory for the NDA, the markets are not ready for a repeat of the 2004 election outcome, where the BSE Sensex plummeted by 15.5% on May 17, 2004, the day election results were announced. The beginning of June is expected to be a crucial turning point as uncertainty around political front and monsoons will be over, which can significantly increase FII inflows. We advise buying during market dips in the run-up to June 4 2024," said Amnish Aggarwal, Head of Institutional Research, Prabhudas Lilladher.

An analysis by the brokerage shows that the economy and markets have done well under both NDA and UPA given strong tailwinds of demographics. However, NDA scores in implementing key reforms and its focus on infra development and inclusive growth across sections and regions.  Advising investors to buy on dips till the poll results are announced on June 4, the brokerage  said foreign portfolio investment will increase significantly after the uncertainty on the political front and monsoons are cleared.

Analysing the manifestos of the leading parties, Prabhudas Lilladher noted the Congress party’s focus is on high social welfare spending, contrasting with the BJP’s emphasis on building modern infrastructure and technology transition

Over the last three months, the top-performing sectors have been Auto, Metals, Power, and Oil and Gas, while defensive sectors like IT services, FMCG, Banks, and consumer durables have lagged behind. Realty, Healthcare, and Capital Goods have maintained their positive momentum. A shift in this trend appears improbable in the short term.

Prabhudas Lilladher expects some sectors, such as infrastructure, banking, healthcare, capital goods, telecom, and green energy businesses, to benefit if the NDA government is voted back to power.

Oil & Gas, Power, Real Estate & Healthcare lead rally

Sectors to Watch:
 

Positive outlook: PL sees good growth potential in capital goods (driven by government spending and production-linked incentives), travel, hospitals, asset management companies (AMCs), and telecom for the coming quarters. They also expect metals to benefit from strong global prices in FY25.

Neutral outlook: The outlook for FMCG and retail is mixed in the near term.

Negative outlook: Banks are expected to see a decline in profitability (NIM compression) leading to slower growth in FY25.

Top Stock Picks:

Large Caps: The report recommends HDFC Bank, ICICI Bank, Larsen & Toubro, Max Healthcare, Maruti Suzuki, Reliance Industries, and Siemens.

Mid/Small Caps: PL suggests Astral Ltd., Can Fin Homes, Eris Lifesciences, Grindwell Norton, Navneet Education, Praj Industries, RR Kabel, Safari Industries, Sunteck Realty, and TCI Express for investment.

Banks: Overweight: PL is reducing its bullish stance on banks (from overweight by 220bps to 80bps) due to expectations of slow growth in the coming fiscal year (FY25). They believe profitability (NIM) and loan quality won't significantly change. However, PL sees a potential upside in HDFC Bank due to a reduction in a regulatory ratio (LDR) and remains positive on both ICICI and SBI though with slight adjustments.

Healthcare: Overweight: PL is boosting their overweight position in the healthcare sector to 310 bps, driven by the expectation that generic pharmaceutical companies will capitalize on favourable API prices and steady US pricing, alongside sustained domestic growth. PL’s optimism extends to hospitals, particularly Max Healthcare and Apollo Hospitals.

Capital Goods: Overweight: PL is boosting their overweight position in capital goods to 610 basis points, driven by robust growth prospects over the next 3-5 years. 

Telecom: Overweight: PL remains overweight on Bharti Airtel and increase weight by 100bps as a structural play on rising data usage in Ecom, Infotainment etc. and expect sustained growth in coming years. PL believes completion of 5G auctions and an expected tariff hike post Vodafone FPO and before JIO platforms will be a key trigger in the medium term.

Consumer: Underweight: PL remains underweight on consumer staples given tepid volume recovery, rising competition from regional players and rich valuations. 

Oil & Gas: Underweight: PL maintains an underweight stance overall, and is shifting to an overweight position on RIL. PL anticipates that continued growth in retail and potential expansions into new energy sectors will propel the company's next phase of development. 

IT services: Underweight: PL turn’s under- weight on IT services as the recovery in IT services is getting delayed. As PL believes segments like EDS, Data Analytics, Digital, Artificial intelligence supply hain etc. will drive growth in the next cycle, ir retained overweight on LTTS and LTI.

Automobiles: Underweight: PL remains   on PV segment and have Maruti, M&M and Tata Motors in the company’s model portfolio.