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PL Capital- Prabhudas Lilladher, one of the most trusted financial services organisations in India, in its latest India Strategy Reportstated that the Indian markets are on course but headwinds are yet to peak out. The firm has cut its base case NIFTY target to 27,381 (27,867 earlier) on Nifty EPS cut by 0.5/2.0/1.5 for FY25/26/27 and recommends selective buying on dips for long-term gains.

According to the report, demand conditions remain mixed with steady uptick in rural demand given low base and normal monsoons. However, rising inflation is affecting demand in urban India (yet to play out fully), more so in metros and big cities, which account for ~35% of the total demand in the economy. All hopes now rest on the demand surge in festival and wedding season.

PL Capital expects interest rate cut only post budget as the spike in food inflation to 10.9% (CPI increase to 6.2%) takes it much above comfort level of the RBI. The broking firm suggests stock specific approach given tepid demand scenario. PL Capital believes Capital Goods, Infra, EMS, Hospitals, Pharma, Tourism, Auto, New Energy, E-com, Jewellery are good themes to play at current valuations.

The benchmark index NIFTY50 is down 6% cut since October 12, showing the impact of Rs 72,000 crore FII selling amidst Donald Trump’s victory in US presidential elections, sustained geopolitical uncertainty, strength of USD and softening of Gold prices.

PL Capital highlights three factors that can support growth going, ahead:

1) Results of recent state/Bye elections in Maharashtra, Haryana, UP and Bihar have consolidated the position of ruling NDA which will provide much needed stability and resolve to push for reforms.

2) Trump 2.0 is likely to see some reduction in global wars, lesser geo political uncertainty and stable crude prices.

3) Expected revival in government capex as 2Q capex has turned positive and 1H capex is only 37% of FY25 BE.

PL Universe in 2Q reported Sales, EBIDTA, PAT growth of 3.2%, -2.0%, and -5.0% YoY respectively. Coverage universe posted lower sales/EBIDTA and PBT growth by 1.7/2.3/4.3% than estimates. Ex-BFSI EBIDTA declined 6.1% while PBT declined by 4.3%. Ex- O&G EBIDTA increased 0.1% while PBT declined by 3.6% YoY.

Travel, Consumer Durables, Hospitals and Capital Goods had beat in sales by 1.8-5.3%. Auto, Consumer, Metals, Oil & Gas, Chemicals, Banks and HFC reported decline in sales between 1.9-3.5%.

Banks, Capital Goods, Hospitals, Logistics, Pharma reported more than 19% EBIDTA growth YoY. Building Material, Cement, Media, Oil & Gas reported more than 20% decline in EBIDTA while Auto, consumer and HFC reported single digit EBIDTA decline. Durables, IT services and chemicals reported single digit EBIDTA growth.  Consumer, Cement, Building Material, logistics, Travel and Auto reported decline in PBT.

33 out of the 50 NIFTY stocks experienced earnings downgrades for FY25 this quarter, while 41 stocks saw earnings downgrades for FY26.

There were 26 rating upgrades and 8 rating downgrades. Capital Goods had 9 upgrades while Oil & Gas had 5. Broader consumption space (Consumer, Building Material and Auto) accounted for most downgrades.

 Major Rating Upgrade: Titan Company, Britannia, Marico, NALCO, Cyient, HPCL, BPCL, IPCA, Hindustan Aeronautics, Bharat Electronics and GE T&D.

Major Rating Downgrade: Mahanagar Gas, Gujarat Gas, PVR, Restaurant Brands Asia, Avenue Supermarts, Astral and Tata Motors.

Major Estimates Upgrade – Lupin Lab, HPCL/BPCL, NALCO, KIMS, Engineers India and SBI.

 Estimate Downgrade – Ashok Leyland, Tata Motors, CEAT, Exide, IndusInd Bank, Astral, Finolex, Ultratech, Ambuja, Kalpataru, Aarti, SRF, Bajaj Electronics, Asian Paints, Britannia, Jubilant Foodworks, Kansai, Westlife, Restaurant Brands Asia, Healthcare Global, PVR, Hindalco, Tata Steel, JSW Steel, Jindal Steel & Power, Manglore Refineries, Zydus, VIP Industries.

 Major Target Price increase – ICICI Bank, SBI, GE Vernova T&D India, Triveni Turbine, KIMS, MAX Health, Healthcare Global, IPCA and Divi’s Laboratories.

 Major Target price Cuts – Hero Motors, Tata Motors, IndusInd Bank, Astral, Century Ply., Aarti, Jubilant Ingrevia, Bajaj Electronics, Asian Paints, Restaurant Brands Asia, Westlife, Navneet, PVR, Tata Steel, Gujarat Gas, Mahanagar Gas, Zydus Lifesciences and VIP.

 NIFTY EEPS has seen a cut of 0.5/2.0/1.5% for FY25/26/27 with 14.4% CAGR over FY24-27 and EPS of Rs 1193/1344/1523. PL Capital-Prabhudas Lilladher’s EPS estimates are lower by 0.5/3/4.6% for FY25/26/27. NIFTY is currently trading at 18.1x 1-year forward EPS, which is at a discount of 5.2% to 15-year average of 19.1x.

 Base Case: The research house values NIFTY at 15-year average PE (19.1x) with Sept 26 EPS of 1,434 and arrive at 12-month target of 27,381 (27,867 earlier).

Bull Case: PL Capital-Prabhudas Lilladher values NIFTY at PE of 20.1x and arrive at bull case target of 28,750 (29,260 earlier).

Bear Case: Nifty can trade at 10% discount to LPA with a target of 24,643 (24,407 earlier).  

Model Portfolio: PL Capital-Prabhudas Lilladher is cutting weights on Hindustan Unilever, ITC, Nestle India & Reliance Industries. They are removing L&T Technology Services, Astral, IndusInd Bank from the model portfolio, and adding POLYCAB. The research house in increasing weights on L&T, Britannia, Titan, ICICI Bank, HDFC Bank, Infosys, LTIMindtree and Ultratech Cement.

High Conviction Picks: PL Capital-Prabhudas Lilladher is removing BEML, IndusInd Bank, J.B. Chemicals & Pharmaceuticals and RR Kabel given near term headwinds in RR Kabel and IndusInd Bank, stake sale uncertainty in JB Chemicals and poor performance from BEML. They are adding Lupin, Polycab India, Aster DM Healthcare, DOMS Industries and Triveni Turbine in conviction picks. 

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