Rule out V-shaped recovery, markets can fall more, says PL Capital with Nifty 12-month target at 27,589

Following an eight-week losing streak in the Nifty, its first such run since 2001, domestic brokerage PL Capital remains cautious on the near-term market outlook. The brokerage does not expect a V-shaped recovery and does not rule out a further decline before the market enters a consolidation phase.

PL Capital has cut its Nifty EPS estimates by 1.3% for FY27 and 0.5% for FY28, while projecting earnings growth of 16.1% and 14.9%. The brokerage said the Nifty is currently trading at 15.5 times its one-year forward earnings, a 19.3% discount to its 15-year average price-to-earnings multiple of 19.2 times.

Analysts value the Nifty at a 12% discount to its long-term average PE multiple. Based on September 2028 EPS, it has set a 12-month target of 27,589, up from its earlier target of 27,133, which was based on FY28 earnings.

Market turmoil continues

Benchmark Nifty has declined 8.2% over the past six weeks and 6% year-to-date, making India one of the worst-performing major markets globally. Market sentiment has turned jittery amid persistent FII selling and concerns over a 13% monsoon deficit, raising concerns over agricultural production and rural demand, PL Capital said in its latest strategy note.

Further, rising crude oil and agricultural commodity prices, amid global supply chain disruptions, have also heightened inflation concerns. Additionally, the brokerage flagged a shift in the RBI’s stance to calibrated tightening, with a 25 bps repo rate hike in line with rising global yields.

Inflation pressures could hit demand
Domestic demand has remained resilient so far, prompting the RBI to raise its FY27 GDP growth estimate to 7.1%. However, inflationary risks have increased, with inflation projected at 6% in Q3 FY27 and 5.7% in Q4 FY27.
The brokerage does not rule out a slowdown in domestic demand after the festival season as inflationary pressures begin to weigh on consumption.

FII inflows may remain weak PL Capital added that India may struggle to attract significant FII inflows in the near term, with US Treasury yields at 5.3%. It cited the limited availability of investment opportunities in emerging technology themes such as semiconductors, AI and technology, the Nifty 100's dollar-adjusted returns CAGR of just 1.2% over the past five years, and the risk of a slowdown in domestic demand amid rising inflation and interest rates as key factors weighing on foreign investor appetite.

Largecaps attractive but risks remain
PL Capital believes several large-cap stocks are trading at attractive valuations, although these could come under pressure if domestic demand slows and earnings per share (EPS) downgrades intensify over the coming quarters.

The brokerage also noted that market momentum has shifted towards newly listed companies and emerging segments, raising the risk of froth building up. While investor expectations are driven by the growth potential and scalability of these businesses, PL Capital cautioned that there could be multiple misses for ‘one big hit’.

What PL likes
PL Capital remains overweight on capital goods, healthcare, banks, metals, diversified financials, telecom and ports, while maintaining an underweight stance on auto, IT services, consumer and oil and gas.

In its model portfolio, the brokerage is adding GE Vernova T&D India and Marico. It is increasing weights in Mahindra & Mahindra, ICICI Bank, UltraTech Cement, Hindustan Unilever, Max Healthcare Institute and ICICI Prudential Asset Management Company.

Meanwhile, it is cutting weights in HDFC Bank, Tata Steel, Larsen & Toubro, Hindustan Aeronautics, Titan Company, Pidilite Industries, Reliance Industries and HDFC Asset Management Company.

Under its high-conviction picks, PL Capital is removing Engineers India and Supreme Industries, while adding Britannia Industries, Bharat Electronics, GE Vernova T&D India and Mahindra Logistics.

Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.