PL Capital bets on domestic sectors, sees 6.5% Nifty growth in 12 months

PL Capital expects pharma, banks, defence, and staples to outperform in the near term as domestic demand revives

Domestic-facing sectors are likely to lead market gains in the near term as demand rebounds, according to analysts at PL Capital, who expect the benchmark Nifty50 index to rise another 6.5 per cent over the next 12 months.

 

Indian markets have shown a lot of resilience in the past few months despite big events, and seem to have learnt to live with global volatility and adverse geopolitical news flows, the brokerage said in an India Strategy report. 

 

On the domestic front, it said that the first quarter (Q1-FY26) has seen the front-end of government capital expenditure with a growth of 61 per cent and 39 per cent in April and May. "There is a momentum in ordering and a significant pick up in defence expenditure." Further monetary easing by the Reserve Bank of India (RBI) will help improve the liquidity in the system and improve credit growth, it said. 

 

 

  Given that, all eyes rest on the revival of consumption demand, analysts said, favouring stocks in these sectors. Additionally, normal monsoons, multi-year low food inflation, and benefits of tax cuts in the FY26 budget could also boost domestic demand. India Inc. in Q1 has shown a mixed trend, but the upcoming festival season and spatial distribution of monsoons hold the key to broad-based demand revival, PL Capital noted. 

 

The brokerage set a 12-month target of 26,889 (6.7 per cent upside from Wednesday' close), up from 25,521 earlier, adding that sectors such as pharmaceuticals, select consumer staples, banks, capital goods, defence, and power are expected to outperform in the near term. In a bull case scenario, the Nifty is expected to move up to 28,957 levels.  

Earnings outlook 

PL Capital notes that the earnings outlook remains uncertain, with its Nifty EPS estimates for FY26 and FY27 cut by 7.3 per cent and 6.15 per cent, respectively. Consensus cuts are even steeper at 8.9 and 7.5 per cent, it noted. Despite this, the Nifty has risen just 0.8 per cent since the EPS downgrade began in October 2024. 

 

Sectors like building materials, durables, pharma, and travel are expected to report margin declines, while cement, metals, oil & gas, EMS, and telecom should see sharp expansions, the note said. 

 

Urban demand remains sluggish, though rural consumption is steady. Marriage season demand has aided jewellery and two-wheeler sales, while early rains have hit durables. Capital goods and defence are buoyed by strong government capex. PL Capital said. 

 

Banks face credit pressure, but rate and CRR cuts may aid margins. EMS, AMCs, and commodity plays will lead profit growth, while IT, consumer, pharma, and travel sectors will post modest gains, according to PL Capital.   

High-conviction stock picks 

PL Capital has removed Max Healthcare, Britannia, Mahindra and Mahindra, Sun Pharma, Rainbow Hospitals, Chalet Hotels, and Eris Lifesciences from its list of high-conviction picks. 

 

While the brokerage remains structurally positive on most of these names, it believes the current valuations offer little room for further gains in the short term. In their place, PL Capital has added Apollo Hospitals, Lupin Laboratories, and Samhi Hotels to its conviction list.