PL Capital raises Nifty base-case target, sees 30,000 in bull case

PL Capital on Wednesday raised its base-case target for the Nifty to 27,019 from 26,449 earlier, while saying India’s structural growth story remains intact. The domestic brokerage said the economy is facing near-term risks from geopolitical uncertainty, weather-related disruptions and inflationary pressures. The brokerage said improving domestic demand, easing crude oil prices and attractive market valuations could support the broader equity market.

This is even as the domestic economy face near-term risks from geopolitical uncertainty, weather-related disruptions and inflationary pressures.

Nifty is trading at one-year forward PE of 17.3 times, an 11.7 per cent discount to its 15-year average, even as the valuation multiple has increased following the recent rally. The current phase is filled with uncertainty, and markets are likely to remain highly volatile, the broking firm said.

The resumption of hostilities in West Asia and rising probability of EL Nino made PL Capital turn cautiously optimistic on equities, advocating stock-specific approach.

In its bull case, PL Capital values Nifty at 19.6 times to arrive at a target of 30,021 against 29,387 earlier. Meanwhile, PL Capital expects Nifty to trade at lowest point of PE during the eurozone crisis in 2013 at 13.5 times to arrive at a bear case target of 20,678, which would likely assume a worst-case kind of a scenario in current context.

"We believe that sectors like Banks, NBFC, Capital Goods/ Defence, Telecom, Jewellery, Hospitals and Durables have a positive outlook. We remain cautious on IT Services, Exports, Cement, Chemicals and Oil and Gas segments," PL Capital said.

Among its high conviction picks, PL Capital removed JSW Infrastructure, Ajanta Pharma and KEI Industries.  It added Blue Star and Engineers India to the list while retaining all large cap conviction picks which includes Bharti Airtel, Titan Company, Britannia, ICICI Bank, Kotak Mahindra Bank, Larsen and Toubro and Shriram Finance.

In its model portfolio, the domestic brokerage increased weights on ICICI Bank, Kotak Bank, Shriram Finance, Bajaj Finance, and Bharti Airtel. It cut weights on IT services and remained overweight on banks, NBFC, capital goods, metals, ports, healthcare and telecom. "We suggest underweight on Consumer, Auto, IT Services and Oil and Gas," PL Capital said.