As Dalal Street and global stock markets reel under the impact of a prolonged Iran-US war, skyrocketing oil prices and mega El Nino year, Prabhudas Lilladher trimmed its Nifty 50 target to 26,449, noting that markets are unlikely to significantly correct further and breach recent lows, although prolonged uncertainty could add to sharp swings.
The domestic brokerage in its latest ‘Strategy’ report highlighted that Nifty has crashed more than 7% in the past two months and over 15% from its 52-week high as the raging war in the oil-rich Middle East disrupted global supply chains and pushed crude prices higher up. “Indian economy has not shown any brakes on the growth trajectory, but fissures have started showing up a bit in the wake of rising geopolitical risks and India’s foreign dependence, not only for crude but for essential like Fertilizers, rare earths, semiconductor and critical technologies,” it added.
The skyrocketing oil prices due to global supply chain disruptions have resulted in higher prices of petrol, diesel, LPG, FMCG, dairy, chemicals, durables and auto. PL Capital believes that the full impact of higher daily essentials, EL Nino and rising inflation has the potential to curtail consumption demand from the second quarter (July-September) of the ongoing FY27.
RBI rate hikes in FY27?
The domestic brokerage believes that India would have a significant spike in subsidy for fertilizers, food and fuel and loss of excise on petroleum products, which could put an incremental fiscal burden of Rs 4-5 trillion. It doesn’t rule out the possibility of RBI’s rate hikes from the second half of the financial year 2027. Balance of trade including services remain comfortable, however sustained FII selling, pressure on remittances ($120 billion/annum and $40 billion from Middle East) and crude spikes are placing the currency under stress, it added.
PL Capital said that NIFTY is trading at 16.5x 1-year forward EPS, which is at 13.6% discount to 15-year average PE of 19.1x and is at a discount of 18.7%-to-10-year average PE of 20.3x. “We value NIFTY at 10% discount to 15-year average PE of 17.2x with FY28 EPS of 1,538 and arrive at 12-month target of 26,449 (27,080 earlier),” it added. The latest target implies an upside potential of nearly 14% from current level.
Which sectors is Prabhudas Lilladher bullish on?
PL Capital believes that private banks, NBFC, metals, capital goods, defence, data centers, renewables, railways, ports, ship building, semiconductors and healthcare are themes to play. However, it remained cautious on IT services, consumer, chemicals, agriculture and oil & gas.
“We retain underweight on IT Services, auto, consumer and oil & gas. We are overweight on banks, capital goods, diversified financials, metals, healthcare, telecom and ports. We are cutting weights on auto, banks, consumer, healthcare and IT services. We are increasing weights on metals, capital goods and engineering/ defence, NBFC, AMC’s, telecom and ports, the domestic brokerage said while speaking about its model portfolio.
Prabhudas Lilladher reshuffles its model portfolio
It is adding HDFC Asset Management Company in its model portfolio, and adding weights on Tata Steel, JSW Steel, Larsen & Toubro, Bharat Electronics, Britannia Industries, Nestle India, Bajaj Finance, Bharti Airtel and Adani Ports & SEZ. It is however cutting weight on Mahindra & Mahindra, HDFC Bank, Titan Company, LG Electronics India, Sun Pharmaceuticals and Infosys.
PL Capital removed Ipca Laboratories, LG Electronics India, Apeejay Surrendra Park Hotels, Mahindra & Mahindra and Fortis Healthcare from its list of high conviction picks. Meanwhile, it added JSW Infrastructure, DOMS Industries, Rainbow Children Medicare, Ajanta Pharma and Jindal Stainless in the list.
Its overall list of high conviction picks now includes Bharti Airtel, Britannia Industries, ICICI Bank, Kotak Mahindra Bank, Larsen & Toubro (L&T), Shriram Finance and Titan Company among large-caps, and Ajanta Pharma, CESC, DOMS Industries, HealthCare Global Enterprises, Ingersoll-Rand (India), Jindal Stainless, JSW Infrastructure, KEI Industries and Rainbow Children's Medicare among the small and midcaps.
