India’s economy is on a positive trajectory with a focus on infrastructure development driving growth, highlights the report “India Strategy” by Prabhudas Lilladher, a stock broking company.
The report noted that after the successful contest in the election and the formation of NDA government at the center, the government will continue its capital expenditure.
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The report highlighted that the government will maintain a focus on capex-led growth around PLI, roads, ports, aviation, defense, railways, and green energy, given a 20bps lower fiscal deficit in the financial year 2023-24, normal monsoons, and a ₹2.1 trillion dividend from RBI.
The fiscal deficit for the financial year 2023-24 stands at 5.6%, providing room for the government to push for growth and populism. The RBI’s dividend of ₹2.1 trillion has further increased the fiscal space, enabling investments in key sectors like green energy, EV, and rural development.
However, the report also highlighted the need for the government to increase its focus on farmers, the rural population, urban poor, and middle class to mitigate the impact of new social engineering cum freebies-led reversals in certain states in recent elections.
In the stock market, the report shared a positive outlook on sectors including Auto, Banks, Capital Goods, Defence, Hospitals, Pharma, cement, Aviation, and Discretionary consumption and also increased weights behind Capital Goods, Telecom and Cement.
The latest quarterly results showed strong performance in sectors like auto, oil and gas, metals, capital goods, and pharma. While some sectors like consumer, IT, and oil and gas reported tepid numbers, there is optimism around the growth potential in auto, capital goods, and pharmaceuticals. Mid and small-cap stocks have outperformed, reflecting market confidence in the economy.
According to the report, the NIFTY is trading at a 15-year average PE (price-to-earnings ratio) with a 14.9% EPS (Earnings per share) CAGR (Compound annual growth rate) over the financial year 2023-24 to 2025-26.
For the next 12 months, the report shared the NIFTY target is 25,816 (25,810 earlier). It states that the progressive budget, normal monsoons, and strong inflows will further re-rate markets.
NIFTY has shown consolidation with an up move of 5.4% in the past 2 months, which have seen extreme market volatility during elections, strong DII inflows of ₹892 billion, and FII outflows of ₹449 billion.
The report said that the Indian economy remains on firm footing with 8.2% GDP growth for the financial year 2023-24, a ₹2.1 trillion dividend from RBI, and a smooth start to monsoons. The RBI keeps policy rates unchanged amidst fears of inflation, although the ECB (European Central Bank) and several other countries have started announcing rate cuts.
The report added that hopes of normal monsoons and a move towards defensives in the current volatile environment have seen some comeback for FMCG and consumer durables. Private Banks and IT services remain underperformers.
