Axis Securities has upgraded its December target for Nifty50 by 2 percent to 17,700 on expectations that corporate earnings momentum will sustain in the September quarter as well.
The 50-stock index has gained over 7 percent in the past 30 days. On Friday, Nifty 50 settled 0.5 percent higher at 17323.60 registering a lifetime closing high.
In addition to the optimism over the reopening and swift recovery of the world and domestic economy, higher vaccination drives, demand revival hope and policy support has propelled domestic benchmark indices to scale fresh highs recently.
With the hike in the target for December, the brokerage firm has valued Nifty at 22 times on FY23 earnings.
“It is critical for the earnings momentum to sustain even in Q2FY22 which seems likely in light of gradual reopening of the economy as well as significantly picked up vaccination rates,” Axis Securities said in a note.
Even as Q1FY22 earnings were a mixed bag, stellar performance by metals, information technology and cement sectors has driven further upgrades to Nifty50 earnings.
The brokerage firm believes that the metal sector will primarily contribute to the earnings growth in FY22/23.
However, Axis Securities’ Market Valuation index has bounced back to the cautious zone after the recent rally.
“Current levels indicate some profit booking in the market (especially Large Caps). Stock picking and Sector Rotation are keys at the current levels to achieve outperformance,” the brokerage note said.
At current levels, PSU Bank, energy and metal index provide valuation comfort whereas valuations for information technology, pharmaceutical and automobile sectors are expensive, according to the domestic brokerage firm.
But valuations for information technology sector are likely to remain expensive in the wake of a strong structural theme emerging in the sector, it added.
From a valuation standpoint, the brokerage firm believes that midcaps look relatively attractive as compared to largecaps. Plus, the recent spate of IPOs and their successes are evidence enough of the market’s strong appetite for midcap and smallcap stocks.
Investing in value and quality stocks have been the best performing themes in the last 6 months while the growth theme has been a laggard, Axis Securities highlighted.
Even in the midcap and smallcap space, quality stocks have outperformed the non-quality stocks by a significant margin, the brokerage firm noted.
“In conclusion, attractive opportunities continue to remain in the Small and Mid Cap space,” it said.
Meanwhile, the volatility index remained range-bound and hovered around the 13-point mark during the month, which is significantly lower than the long-term average of 22.
This makes the brokerage firm believe that the fear gauge will continue to remain around these levels which rules out chances of significant market correction in the near term.
Accordingly, Axis Securities has recommended ICICI Bank, State Bank of India, Federal Bank, Equitas Small Finance Bank, Varun Beverages, Camlin Fine Sciences, Mold-Tek Packaging, Amber Enterprises India, Minda Corporation, Steel Strips Wheels, Krishna Institute of Medical Sciences, Tech Mahindra, Bharti Airtel, HCL Technologies, Orient Cement and Ashok Leyland.
(Edited by : Anshul)