Mumbai: IDFC Securities Ltd continues to maintain benchmark index Nifty’s fiscal year 2018 target at 9,825 points, saying that the brokerage firm believes that though Indian companies are exhibiting a sustainable recovery, it is a relatively gradual one.
In a note on 13 June, IDFC Securities said that Nifty earnings are expected to grow by 20% in fiscal year 2019, but given that corporate earnings recovery is weaker than earlier expected, it foresees downgrade risks to earnings growth and it could realistically settle at 15% growth on year-on-year basis.
“Given weak private capex and mild slowdown in services growth, we believe downgrade risks to corporate earnings will continue to exist,” IDFC Securities analysts said in the note.
IDFC Securities analysts said that assuming that markets have already started pricing in fiscal year 2019 earnings and demonetisation impact is limited to two quarters, they have applied 15% growth expectations to pre-demonetisation Nifty levels of 8,543 points.
“Timely advent of monsoons, on track GST (goods and services tax) implementation, a better-than-expected earnings season, existing political and policy certainty—these factors have helped Nifty scale new heights in the last one month,” they said.
National Stock Exchange’s 50-share Nifty scaled a record high of 9,709.30 on 6 June, and has erased 1.05% since then to 9,606.90 points. It is still up 17.36% year-to-date. IDFC Securities’s target for fiscal year 2018 is just 2.3% more than the current level
“We believe, for rest of H1FY18, markets will closely monitor expected short term disruption from GST implementation, a still looming mild threat from El Nino (impacting progress of monsoons),” IDFC analysts said.
Year-to-date, foreign institutional investors (FIIs) and domestic institutional investors (DIIs) have pumped in a net of $7.7 billion and Rs16,331.83 crore in Indian shares, respectively.
They believe GST disruption could be a short-term spoilsport, but will continue to be a growth catalyst in the long run.
“In light of reasonable valuations, strengthening global growth, Exim trade recovery, we reiterate our preference for asset heavy plays, value and export stories,” the analysts sai. They, however, added that given relatively dear valuations, they continue to maintain a neutral stance on consumption.
The brokerage firm is overweight on engineering and capital goods, IT, media, metals, oil and gas and pharma; underweight on real estate and telecom; and neutral on autos, banks, cement, chemicals and consumer goods.
Their top buys in the large-cap space are HDFC Bank Ltd, ITC Ltd, Hindustan Unilever Ltd, Infosys Ltd, Power Grid Corp. Ltd, Adani Ports & Special Economic Zone Ltd, IndusInd Bank Ltd, Hindustan Petroleum Corp. Ltd, Motherson Sumi Systems Ltd, United Phosphorous Ltd, Hindalco Ltd, Tech Mahindra Ltd and Aurobindo Pharma Ltd.
In the mid-cap space, IDFC analysts like Dish TV India Ltd, AIA Engineering Ltd and Torrent Pharmaceuticals Ltd are the top picks, while Chennai Petroleum Corp. Ltd, Sterlite Technologies Ltd, Rallis India Ltd, Nava Bharat Ventures Ltd and Teamlease Services Ltd figure in the small-cap space.
Its top sells are Bajaj Auto Ltd, Nestle India Ltd, Bharat Heavy Electricals Ltd, Titan Co. Ltd, Container Corp. of India Ltd and DLF Ltd.