RIL, SBI, Axis Bank, KEC International & MedPlus Health among Nomura's top 2023 picks

Foreign brokerage Nomura has pegged Nifty target at 19,030 for 2023-end, with stocks such as State Bank of India (SBI), Axis Bank, Larsen & Toubro (L&T), Hindustan Unilever (HUL) and Reliance Industries (RIL) are among its top largecap picks. In its India Equity Strategy note, the foreign brokerage said it prefers KEC International, Zydus Lifesciences, MedPlus Health and Sansera Engineering in the midcap and smallcap space.

Unlike most markets, said Nomura India, Nifty is trading at higher valuation multiples than pre-Covid levels. The valuation premium to EM is at 70 per cent against the historical average of 40 per cent, it said adding that such valuations reflect expectations of a strong earnings momentum and  relatively stable macro.

Assuming 5 per cent risk to Dec-24 consensus earnings estimates and 18.5 times one-year forward PE, it arrived at a Nifty target of 19,030.

India Equity Strategy, the brokerage said it prefer domestic sectors over exporters.

"Within domestics, we prefer sectors/companies with low earnings sensitivity to economic slowdown. We are overweight (OW) on banks, consumer staples, infra/construction and telecom. We are  underweight (UW) on consumer discretionary, capital goods, metals, and IT services. We  are neutral on healthcare (prefer domestic exposure), oil & gas and utilities," it said.

Among financials, the brokerage likes SBI, Axis Bank, ICICI Bank and SBI Card. It said valuations for the sector are below pre-Covid levels and that there is low risk to earnings given stronger balance sheet and  lower probability of a material deterioration of asset quality. Growth concern in H1FY23 could lead to  some pull back in the sector, but for 2023, it expects banks to outperform the broader market as  growth outlook improves.

Among consumer staples, Nomura has HUL, Britannia Industries and Dabur India as its preferred picks. Nomura's  OW stance  on the sector is driven by relatively low risk to earnings. It sees potential for earnings  improvement with recovery in rural demand and margin benefits from decline in commodity prices.

In the infrastructure pack, the foreign brokerage said it is positive on pick up in public capex spending in select segments (T&D, Rail and water), prefer  diversified capex plays. Strong order book and lower commodity prices limits downside risk to  earnings, it added.  L&T and KEC International are its preferred picks in this segment.

In the telecom space, Nomura likes Bharti Airtel. The outlook remains strong as the sector has undergone consolidation and further growth is likely on higher realisation.

Nomura is neutral on healthcare sector. Steady domestic growth and low costs presents earnings support, it said while suggesting its preference for domestic pharma plays. Nomura said it is relatively cautious on hospitals and  diagnostics.

It likes Zydus Life and MedPlus Health Services.  The brokeraage has a 'sell' rating on Dr Lal PathLabs.

In the oil & gas space, lower oil prices can lead to improved outlook for OMCs, which can support a short term rally  in the sector, Nomura said.

"Else structurally we are not positive  on OMCs. We are positive on RIL and select gas names," it said. This brokerage likes  IGL, Reliance Industries and Gujarat Gas.

Here's Nomura's views on key sectors and its preferred picks: