Sensex at 87K? SBI, BoB, J&K Bank & Bajaj twins are top stock bets, says Anshul Arzare of YES Securities

In light of the US Federal Reserve's anticipated rate cuts, Indian stock markets have scaled new highs, with focus shifting on global and domestic cues. In an interaction with Business Today, Anshul Arzare, MD and CEO at YES Securities believes that a 25-basis point reduction seems likely and is largely expected, but any deviation from this could significantly influence market trajectories. He also projected Sensex and Nifty50 to reach 87,000 and 28,000 respectively by the end of FY25 on the back of favorable monsoon and strong domestic consumption, assuming stable geopolitical conditions. Read the edited excerpts:
 

Q1. With US Federal Reserve’s signalling rate cuts in its coming policy meeting, what will be other key factors that will guide the directions of the market in the upcoming two-quarters? What are your targets for Sensex and Nifty50 by the end of FY25?

Ans: The US Federal Reserve's recent signaling of potential rate cuts has captured market attention, with the focus now on the magnitude of these cuts. A 25-basis point reduction appears to be what is anticipated and priced in by the market. However, a more aggressive cut could provide significant upward momentum for the markets.
 

In the Indian context, key factors such as food inflation and broader global economic conditions will play a crucial role in determining market trends over the next two quarters. On the backdrop of good monsoon and strong domestic consumption, we expect the Sensex to reach 87,000 by the end of this financial year, and the Nifty50 to correspondingly near around 28,000 by the close of FY’25, provided these developments unfold as expected and there are no extreme ended geo political events.
 

Q2. What have been the key takeaways for your June 2024 quarter? Which stocks and sectors impressed you the most and which ones were a disappointment with their numbers?

Ans: The subdued topline growth was evident, with Auto and Pharma stocks outperforming on topline and Ebitda growth. However, the underperformance of IT, Infrastructure, Banks and MFI stocks moderated earnings growth.
 

Q3. Railways stocks, PSUs and defence counters have been the Dalal Street darlings lately. Do you see more steam left in them or is the best over for them? What are your top picks from the pack?

Ans: We maintain a bullish outlook on PSU banks, with SBI and Bank of Baroda as our top picks. While the Railway and Defense sectors have seen significant rallies, which have already priced in much of the anticipated future growth, consolidation is likely.
 

SBI has consistently demonstrated its strength over the past few quarters, both in core operating performance and asset quality. The management remains confident in its growth trajectory, maintaining healthy margins, and further improving its return on assets (RoA). With sustained balance sheet growth of 13-15%, a strong liabilities franchise, and prudent asset quality management, SBI's RoA is projected to stabilize around 1% in FY25-26E.
 

Similarly, Bank of Baroda has delivered a steady performance, marked by robust business growth, improved margins, and enhanced asset quality, all contributing to an uptick in earnings.  With the dollar index weakening, which bodes well for commodities and can also boost metal shares in the short run.
 

Q4. What is your view on the broader markets? Will they continue to outperform the larger peers or is it time to take some money off the table? What are your top stock picks from midcap and smallcap space?

Ans: We maintain a bullish stance on the market, driven by three key factors: valuations, liquidity, and risk appetite. With expectations of increased liquidity, the broader market is poised for upward movement. However, it's important to note that not all stocks will rise, as we observed in the post pandemic period. The market's gains will likely be selective, with certain sectors and stocks outperforming others. The midcap and small cap is a very vast space and there are a lot of new trends emerging which is giving opportunity to new business opportunities. Our picks from small cap and mid cap are J&K Bank and Glenmark Pharmaceuticals respectively.
 

Q5. What should be the investors' strategy when the markets are trading near all-time high? What stocks are you looking at from the large cap space? Can you please explain the rationale for picking them?

Ans: When markets are trading near all-time highs, it's crucial for investors to focus on holding stocks with strong fundamentals. Fresh investments should be considered carefully, targeting companies that are fundamentally sound and have strong long-term growth potential. In the large-cap space, Bajaj Finserv and Bajaj Finance stand out as compelling options. As a well-diversified non-banking financial company (NBFC), Bajaj has established itself as one of India’s largest retail-focused NBFCs. The group’s strategy focuses on building scale and maximizing profitability, particularly in high-growth segments such as mortgages, small business loans, and commercial lending. These areas are expected to drive future growth, while consumer durable and personal loans continue to provide steady profitability. This balanced approach between scale and returns positions the Bajaj twins as strong candidates for medium to long-term investment.