The NSE benchmark Nifty is likely to reach 25,816 in the next 12 months, amid high GDP growth, rupee deman pickup on normal monsoon, strong fiscal situation, and capex push by the government, according to the latest report by Prabhudas Lilladher released on June 14.
According to Prabhudas Lilladher’s (PL) latest India Strategy report titled ‘Hurdles Over; Ready for a Dream Run’, the projection is based on a 15-year average PE ratio of 19.2x and a March 2026 EPS of 1344, slightly adjusted from an earlier target of 25,810.
“Base Case: we value NIFTY at 15-year average PE (19.2x) with March 26 EPS of 1344 and arrive at 12-month target of 25816 (25810 based on 19x March 26 EPS of Rs1358 earlier). Bull Case: we value NIFTY at 5 per cent premium to 15-year average PE 20.2x (20x earlier) and arrive at bull case target of 27102 (27100 earlier). Bear case: Nifty can trade at 10 per cent discount to LPA (10 per cent earlier) with a target of 23235 (23229 earlier),” it added.
On Friday, the BSE Sensex gained 182 points, or 0.24 per cent, to end at 76,993 levels, while the Nifty50 shut shop 67 points, or 0.29 per cent, higher at 23,466.
Key Drivers of Market Optimism
PL’s optimistic outlook is grounded in several critical factors, including a progressive budget, expected normal monsoons, and robust capital inflows. Since the release of PL’s previous strategy report on June 12, 2024, the Nifty index has shown resilience by delivering a 4.4% return despite significant volatility during the Lok Sabha elections.
The report anticipates that the NDA government will maintain a strong focus on capital expenditure-driven growth. This includes significant investments in sectors such as production-linked incentives (PLI), infrastructure development encompassing roads, ports, aviation, defense, railways, and green energy. The forecast is further supported by a 20 basis points reduction in the fiscal deficit for FY24 and an anticipated Rs. 2.1 trillion dividend from the RBI.
Agricultural Impact and Economic Sentiment
The report also highlights the impact of the monsoon season on the economy. FY24 experienced a 6% deficit in rainfall, leading to a 10.8% decrease in Rabi crop output and a 1% decline in Kharif crop output. Despite agriculture’s contribution to GDP falling below 20%, the repercussions on inflation, rural incomes, and overall economic sentiment remain significant.
Fiscal Health and Economic Outlook
According to FY24 actual figures, India’s fiscal deficit stands at 5.6%, which is better than the estimated 5.8%. Revenue receipts have been robust, with double-digit growth in net tax revenues. PL believes the lower fiscal deficit, combined with the Rs. 2.1 trillion RBI dividend, provides the government with sufficient cushion for both growth initiatives and populist measures. The report projects a GDP growth rate of 7.2% for FY25.
Modi 3.0: Balancing Growth and Populism
With the NDA government securing around 300 MPs out of 543 in the general elections and BJP holding 240 seats independently, the government is expected to maintain its growth focus while also addressing populist demands. This scenario mirrors past periods when no single party held a majority, emphasizing the need for effective collaboration and decision-making.
Sectoral Insights and Investment Strategies
Infrastructure: Anticipated strong focus on infrastructure development in roads, ports, metros, airports, railways, power, green energy, hydrogen, electric vehicles, data centers, defense, and PLI.
Rural and Agricultural Reforms: Increased emphasis on higher crop prices and crop diversification to address negative perceptions from recent farm law agitations.
Banking: Increased overweight position on banks due to strong credit growth and robust asset quality, with major private banks trading at multiyear low price-to-book ratios.
Healthcare: Maintained overweight position with strong prospects for generic pharma players and hospitals like Max Healthcare.
Consumer Sector: Adjusted weightings, reducing positions in HUL and Titan while increasing investment in InterGlobe Aviation.
Automobiles: Continued overweight stance, with expectations of increased demand for entry-level bikes and sustained momentum in M&M’s Auto division and tractor segment.
Market Performance and Outlook
Despite election volatility, the Nifty index has consolidated with a 4.4% increase over the past two months. The report notes strong domestic institutional investor (DII) inflows and foreign institutional investor (FII) outflows, highlighting market confidence in India’s economic prospects. The BSE small cap and mid cap indices have outperformed, reflecting robust market breadth and investor confidence.
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