InCred Equities lowers Nifty 50 target to 25,327, rehauls high-conviction stocks. Check full list here

In its latest report, brokerage house InCred Equities announced that it has lowered its Nifty 50 target by 3%. The brokerage highlighted concerns regarding the delay in the Reserve Bank of India’s (RBI) repo rate cut and the high expectations surrounding earnings growth for the second half of the year, leading them to remain cautious.

Furthermore, they noted that the Nifty 50’s earnings per share (EPS) for the second quarter showed negligible growth quarter-over-quarter, as easing sales growth was offset by effective cost control and increased other income. The consensus EPS estimate has been cut by approximately 4%. Additionally, the brokerage pointed out that the improvement in rural consumer sentiment helped boost demand during the festive season, which somewhat mitigated the weak macroeconomic trends observed in 1HFY25.

“While the forward P/E eased to below the 10-year mean level, we expect the correction phase to persist for a few more months, as the weak macroeconomic situation fails to impress on the EPS momentum front. We cut our Nifty-50 blended index target by 3% to 25,327,” the brokerage said.

The report noted that improved consumer sentiment around the October 2024 festivals, particularly in rural areas, significantly drove festive retail demand across various segments, although there was a noticeable trend of rising discounts. Rising retail inflation is expected to delay a cut in the RBI repo rate until CY25F.

“The recently released inflation print for Oct 2024 has faded hopes of a policy rate cut in the Dec 2024 policy review by the RBI’s Monetary Policy Committee (MPC),” said the brokerage.

Additionally, challenges such as global tariff disruptions, the depreciation of the Indian Rupee, and a slow recovery in government capital expenditure are concerning factors.

“So far in Nov 2024, the INR has weakened significantly against the USD. Robust US dollar and continued foreign portfolio investor (FPI) outflows together led to the depreciation of the INR. FPIs continued their selling spree in Nov 2024, which contributed to the depreciation of the INR,” the brokerage said.

However, with a strong political mandate for the Bharatiya Janata Party (BJP) in the assembly polls in Maharashtra—the second-largest state in terms of political significance—the brokerage anticipates a revival of the government’s capital expenditure plan soon.

High Conviction Stock Ideas List

Given the challenges posed by macroeconomic data in the short term and the overall market’s current consolidation phase, the brokerage has revamped its list of high-conviction stock ideas. Incred Equities is continuing to shift its portfolio towards large-cap stocks, now including Cipla and Pidilite Industries on the list.

“We have introduced short-term pair trade ideas within sectors so as to make the best out of the sideways market movement. The significant ones are Pidilite Industries vs. Asian Paints, GAIL vs. Indraprastha Gas and Bajaj Finance vs. Cholamandalam Finance,” the brokerage said.

The brokerage’s report highlights the performance of its high-conviction stocks and analyzes recent changes since the series began in September 2022.

The top outperformers compared to the Nifty 50 are Skipper (ADD), ABSL AMC (ADD), and Bharat Forge (ADD). Conversely, the underperformers are Tata Consultancy Services (ADD), Hero MotoCorp (ADD), and Exide Industries (REDUCE).

Additionally, the report includes Cipla (ADD) due to the approval of its Goa plant, which is expected to drive strong growth in the U.S. market; Pidilite Industries (ADD) for its recovery in rural markets and benefits from lower raw material costs; and TCPL Packaging (ADD) as it expands with a new plant in South India to enhance volume.

Stock Market Today

According to technical analysts, the benchmark Nifty 50 index has been in correction mode since October, having fallen more than 11% from its all-time high of 26,237, testing levels below 23,200. In recent weeks, the market has experienced a brief rebound, driven by positive developments on the domestic political front. However, today investors seem to be booking profits, as the overall market sentiment remains negative, reflected by the formation of lower tops and lower bottoms.

Moreover, prices had approached a key resistance zone around 24,400, which is a confluence of the 50 and 89 DEMA and the 38.2% retracement level of the decline from the all-time highs. Moving forward, the 23,900-24,000 range will be a critical level to watch, as it marks the bullish gap created on Monday. If this range is breached, the positive momentum that formed the gap may fade, and prices could continue their downward trend towards recent lows.

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