Nifty target at 24,260; any fall a buying opportunity, says Nomura as it picks RIL, ICICI Bank, M&M shares as top buys

In its Outlook 2024 note, Nomura India has set Nifty target of 24,260, based on 20 times December 2025 earnings, representing 12 per cent potential upside.  Nomura said it sees a fair value range of 18-21 times, implying a return range of nil to 17 per cent over 2024. ICICI Bank Ltd, Reliance Industries Ltd (RIL), Mahindra & Mahindra Ltd (M&M), Larsen & Toubro Ltd (L&T) and Godrej Consumer Products Ltd (GCPL) are among its top largecap picks. In addition, the brokerage has Federal Bank Ltd, Coforge Ltd, Lupin Ltd, Medplus Health Services Ltd, Dalmia Bharat Ltd,  Sansera Engineering Ltd as its top picks in the smallcap and midcap space.

Nomura India sees near-term earnings risk as modest, which can be due to slower growth and higher commodity prices against current expectations. With a pickup in private capex and exports, it expects earnings growth could accelerate in the medium term.

In its base case, Nomura factors in continued disinflation and a fall in yields, a modest growth slowdown globally, benign oil prices and a favourable outcome of the 2024 general elections. In this scenario, it expects India valuation to remain at higher-than-historical levels, supported by macro stability, greater visibility on earnings and stronger flows.

"For India, sustained higher commodity/oil prices and an adverse outcome of general elections are the key structural risks. Globally, the scenarios of no landing (strong growth, sticky inflation and higher yields) and a hard landing (sharp fall in growth, inflation, yields) could lead to higher risk premium and lower valuations," Nomura India said.

The brokerage said such a correction would be a buying opportunity, particularly if a growth slowdown or recession in the US is a clearing event reducing macro uncertainties. This could set the stage for a revival in mass consumption and private capex, Nomura said.

Nomura India said it is selective and slightly defensive, given the run-up in valuations in the recent past. The expectations on the growth-inflation balance is extremely sanguine, it said adding that any deviation from this optimum can set a risk off in the backdrop of higher debt and fiscal deficits post the pandemic.

"Our Economics team ’s expectation is of a slower growth across markets vs consensus. We prefer domestic plays. We are overweight (OW) on financials (particularly banks), healthcare, consumer staples, infrastructure, cement, power/coal, oil and gas and telecom. We are underweight (UW) on consumer discretionary/durables, capital goods/defense, metals, internet and IT. We are selective on autos," Nomura India said.

Nomura expects earnings for Nifty 100 contituents to record a CAGR of 20 per cent compared with mid-to-high single-digit growth recorded over FY15-20. It estimates that corporate earnings to GDP, which declined consistently since global financial crisis, rebounded to 8.8 per cent in

FY23 from the lows of 4.6 per cemt in FY18.

Financials were the largest contributor to this recovery, but other sectors also recorded material improvement in profitability, it said.

"Unlike in the past, Nifty50 corporate earnings have largely met the Street expectations for FY24/25 estimates over the past nine months (Apr’23 to Dec’23). We expect medium-term corporate earnings in India to sustain between 12% and 17%, driven by a pickup in private capex and increased exports, bolstered by government policies to support domestic manufacturing. In FY25/26, Bloomberg consensus earnings growth estimates for Nifty 100 of 12.2%/12.5% are at the lower end of our medium-term earnings growth expectations," Nomura India said.

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