JM Financial prefers largecaps; picks 16 stocks including RIL, TCS & BHEL for up to 90% upside potential

With the Union Budget 2025 already being announced, brokerage firms see the announcements from the Finance Minister Nirmala Sitharaman as an endorsement to promote consumption, without compromising on fiscal prudence and maintaining continuity on capex.

Budget FY26 treads a fine balance between the consumption and capex with Nifty50 EPS growth remaining tepid at 3.8 per cent in FY25, but it could be much better in FY26E, said JM Financial.

"The biggest positive of Budget FY26 is the reduction of taxes for the middle class, which leaves more money in their hands for consumption. This has been done without compromising on fiscal prudence with continuity on capex growth at 7 per cent in FY25E and 10 per cent in FY26E," it said.

Nifty EPS growth in 1HFY25 was tepid and in 3QFY25, so far the 26 Nifty50 companies that have reported numbers have delivered only 4.4 per cent YoY growth, it noted. "We have already cut the FY25E EPS growth to 3.8 per cent during 3QFY25 so far. We pencil in an 18.3 per cent growth for the Nifty50 EPS," he said.

The Nifty50, and broader market indices including Nifty Midcap 100 and Nifty Smallcap 100 indices have corrected in the range of 13-18 per cent from their respective peaks. However, the correction has turned valuations to be relatively less expensive now, in the favour of largecaps.

"The bond yield premium above earnings yield suggests the market is cheaper than what the Nifty50 P/E multiples suggest. Midcap and small cap valuations still seem expensive even though earnings growth might be stronger in these names vis-à-vis large caps," JM Financial added.

After the union budget 2025-26, all eyes now shifted to RBI's monetary policy, due later this week. The change in guard at the RBI with a new governor has sparked hopes of the start of the rate cut cycle from February 2025, JM notes. "We expect inflation to trend lower in the near term and the RBI’s recent measures around bond purchases, repo operations and currency swaps were intended to address the liquidity situation In our base case, we are building in a shallow (50-75bps) rate cut cycle for 2025."

The brokerage firm has picked 16 stocks post Budget 2025-26 with up to 90 per cent upside potential. It has picked Bharat Heavy Electricals Ltd (BHEL) with a target price of Rs 358, while KPIT Technologies Ltd with a target price of Rs 2,250, suggesting a 62 per cent upside potential. For HDFC Life Insurance and Reliance Industries Ltd, JM has target prices (TP) of Rs 900 and Rs 1,660, signalling potential gains of 48 per cent and 35 per cent, respectively.

Other picks includes names like Tata Consultancy Services Ltd (TP: Rs 4,680), Bharti Airtel (TP: Rs 1,850), ITC Ltd (TP: Rs 530), Bajaj Finance (TP: Rs 9,350), Larsen & Toubro (TP: Rs 4,015), Sun Pharma (TP: Rs 2,094), Maruti Suzuki (TP: Rs 15,000), DLF (TP: Rs 1,000), Hindalco (TP: Rs 760), Godrej Consumer Products (TP: Rs 1,350), Havells India (TP: Rs 1,900) and SRF Ltd (TP: Rs 3,115) for up to 30 per cent gains.