In a recent market analysis, HDFC Securities has expressed caution regarding the rich valuations of major indices, indicating limited room for upside potential in the coming year. While refraining from specifying a definite Nifty target, the firm suggests a possible 8-10 percent upside from current levels.
Large-caps are anticipated to provide better risk-adjusted returns than mid- and small-caps, driven by higher earnings growth and relatively better valuations. However, this doesn’t signal the end of the broader market rally, which has seen substantial gains in small-cap and mid-cap segments in 2023.
However, market movements won’t be linear, particularly in the first half of 2024, owing to the bond market’s anticipation of interest rate cuts in February-March, ahead of the Federal Reserve’s indications.
Sharma emphasizes, “The Nifty index is now trading at 23x FY24 and 20x FY25 consensus earnings per share, indicating limited upside potential in the next 12 months.” He adds that while supply disruptions in the Red Sea are a concern, India will remain in a comfortable situation as long as crude prices stay below $80 per barrel.
The analysis also highlights that if yields don’t decrease as swiftly as anticipated, less money might flow into riskier assets like emerging markets. Presently, benchmark US 10-year Treasury yields hover near their lowest levels since July.
Sector-wise, HDFC Securities anticipates strong earnings growth in FY24 and FY25 in the BFSI, industrials, cement, home improvement, real estate, and pharma sectors.
In this context, key stocks in HDFC Securities’ model portfolio include overweights such as Maruti, Axis Bank, Federal Bank, CanFin Homes, SBI Life, United Spirits, Crompton, Ashoka Buildcon, NCC, Sobha, JK Lakshmi Cement, Dalmia Bharat, CESC, MCX, Indian Oil, and Mahanagar Gas. On the other hand, underweight positions are suggested for Kotak Bank, HUL, Nestle, Titan, Asian Paints, TCS, Tech Mahindra, and Reliance Industries.
