Suzlon, Coforge among MOFSL midcap picks; BEL, Eternal favored among large caps

MOFSL in its latest strategy note said the worst of earnings cuts is behind us. Supported by a slew of government measures and upcoming reforms, the domestic brokerage expects Indian stocks to benefit from an earnings floor and improved sentiment. While the domestic stock market has lagged over the past year, with the Nifty down 8 per cent YoY against 16 per cent rise in MSCI EM and 15 per cent in S&P500, MOFSL said a rebound is likely in the coming quarters due to reasonable valuations and easing earnings pressures. 

Dixon Technologies, Suzlon Energy, SRF, Jindal Stainless, Coforge and Supreme Industries are its top midcap stock picks. Others included Page Industries, Kaynes Technology India, Radico Khaitan, UTI AMC and Niva Bupa. In the largecap space, MOFSL prefers stocks such as Bharti Airtel, ICICI Bank, L&T, M&M, Sun Pharma, Ultratech. It also likes Titan Company, Eternal, Bharat Electronics (BEL), TVS Motor, Tech Mahindra (TechM), Lodha and Indian Hotels.

MOFSL said Nifty trades at a 12-month forward PE of 20.6 times against the long-term average of 20.7 times, offering room for expansion as policy benefits materialise. which is likely in H2FY26. 

MOFSL expects its coverage universe and the Nifty to post FY26 PAT growth of 13 per cent and 10 per cent, respectively, and a CAGR of 15 per cent/13 per cent over FY25–27. 

"A comparison of current earnings cuts with the 2010s cycle is misplaced. The plumbing of the Indian economy has altered materially since the last decade, supported by strong bank, government and corporate balance sheets, much better economic indicators, a controlled inflationary environment, robust fiscal and monetary policy headroom, corporate pricing power etc," it said.

MOFSL said FY26 PAT/EPS estimates for MOFSL universe and Nifty have already been cut by 13 per cent and 16 per cent, respectively, since Q1FY25, implying that a material part of the downward revision is behind. 

"Barring any new unforeseen economic or geopolitical shock, the risk of further material earnings cuts seems low to us. Analyst estimates have now aligned better to the prevalent environment, as several adverse developments over the past year had forced analysts’ hands to front-load earnings cuts. In fact, over the past six years, barring the black-swan episode of Covid-19, the earnings cuts in this cycle have been the sharpest," it said.

Besides, the brokerage said the  macro setting for corporate earnings over the next few quarters is poised for improvement. Despite multiple geopolitical distractions, the government, policymakers and regulators have adopted a proactive ‘whatever-it-takes’ stance to revive domestic economy, it said.

"Emboldened by muted inflation, the RBI has lowered the repo rate by 100 bps to 5.5 per cent in the current easing cycle, while CRR will be cut by 150 bps to 3 per cent after all the proposed four tranches of CRR cuts are through in the cycle. Liquidity is in a surplus mode and conducive for transmission in the festive season," it said. 

While lower GST rates will not directly lead to higher earnings for companies, it is likely that lower retail prices will create a flywheel for new leg-up for demand. This will help in volume growth and margin expansion through operating leverage benefits and lower base prices, MOFSL said.