Nifty 50 may rise 11-13% in next 12 months, cautious on midcaps, says Anand Rathi; Hero Moto, ICICI Bank among top picks

The medium to long-term outlook for the Indian stock market remains robust and the benchmark Nifty 50 index is expected to give around 11-13% returns in the next twelve months, analysts at brokerage firm Anand Rathi said.

While the smallcap stocks are expected to outperform the brokerage firm remains more cautious on midcap stocks and favours domestic-oriented companies over global cyclicals amid global uncertainties.

“India is a bright spot among emerging economies, with strong GDP growth, a positive fiscal outlook, and modest inflation. While industrial growth is faced with short-term challenges, government spending on infrastructure and rising rural demand offer support,” a team of analysts led by Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers, said in a strategy report.

According to the analysts, the June 2024 quarter corporate earnings are mixed, with certain sectors like auto, financials outperforming others like oil & gas and metals.

“The medium- to long-term outlook is robust, favouring domestic-oriented companies over global cyclicals amid global uncertainties. We expect 11-13% Nifty 50 returns in the next 12 months and small cap outperformance but maintain a cautious stance on mid-caps,” said analysts.

Here are some of the key factors that drives the bullish view of the brokerage firm on the Indian stock market:

Economy & Inflation

India’s fiscal outlook appears promising, with continued focus on reducing the fiscal deficit toward the 4.5% target. Strong tax collections and a substantial Reserve Bank of India (RBI) dividend may enable the fiscal deficit to come in lower than expected, which could potentially lead to an improved sovereign rating, the Anand Rathi report said.

Inflation has moderated, but the CPI is expected to rise in coming months as the base effect begins to fade and analysts do not anticipate any interest rate cuts by the RBI this year.

While data indicate a moderation in industrial growth, a recovery is expected in key sectors such as cement, steel, driven by the government’s ambitious ₹11.1 lakh crore capital expenditure plans, which should stimulate infrastructure development.

“Furthermore, the RBI’s latest data reveal that capacity utilisation has increased from below 75% to 76.3%, signaling a potential uptick in private sector capital expenditure, which could benefit order-book-driven sectors,” the brokerage report said.

Corporate Earnings

India Inc.’s quarterly earnings have been mixed, with Nifty 50 sales increasing 7% YoY and adj. PAT 1.4%, primarily due to weak refining margins in oil and gas. However, excluding oil and gas, Nifty 50 PAT grew 11.8% YoY.

“Sectors such as auto, healthcare, financials and private banks have outperformed, while cement and FMCG have been muted due to lower volumes and the fading effects of low-cost inventory, respectively. The oil & gas and metals sectors have undershot significantly, primarily due to margin pressures,” it noted.

Stock Picks

Anand Rathi favours domestic-oriented companies, particularly in sectors like two-wheelers, passenger vehicles, consumer goods, IT and cements (as proxy for infrastructure growth), over global cyclicals such as metals, and oil & gas.

It remains neutral on infrastructure, financials and chemicals and maintains a more cautious stance on mid-caps.

Largecap Stock Picks: In largecaps, the brokerage house prefers Dabur India, Havells India, Hero MotoCorp, ICICI Bank, LTIMindtree and Ultratech Cement.

Smallcap, Midcap Stock Picks: In small and mid-caps, it likes Arvind Fashions, Ashok Leyland, Bharat Bijlee, Birla Corporation, Chalet Hotels, Cholamandalam Investment and Finance Company, Crompton Greeves Consumer Electricals, HG Infra Engineering, Rategain Travel Technologies and United Breweries.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.