Prabhudas Lilladher raises Nifty March 2022 target to 16,075; lists top pick and model portfolio

Brokerage House Prabhudas Lilladher (PL) raised March 2022 Nifty target to 16,075 post stellar earnings in the December quarter followed by EPS upgrade for the benchmark index. The earlier target for the period was 15,137.

Q3 had broad-based earnings beat as aggregate sales, EBITDA, and profit were higher than estimates, the brokerage said. Festival season demand has been robust, and the next quarter should report good numbers on a low base, added PL. However, it noted that margins have also peaked out due to rising commodity prices and bottomed outspends on advertising, marketing, and overheads.

PL further arrived at a bull case target of 19,137 (18,921 earlier). Economic revival sustained global liquidity, low-interest environment, and control of Covid-19 pandemic is key to bull case scenario, it added.

Going ahead, it believes that cyclical recovery is underway and turns overweight on Metals and NBFC. However, it cut weights in Consumer, IT, and other sectors slightly. The brokerage continues to focus stock-specific approach.

Auto: In this space, the brokerage retains an overweight stance. It plays on the cyclical turnaround in CVs and rural growth led by Ashok Leyland and M&M. It likes Maruti Suzuki and Eicher even though it reduces the weight of Eicher by 20 bps.

Banks: The brokerage also remains overweight on banks as best play on recovery and Infra. It did not change weights in any of the banking stocks.

Consumer: It is overweight on the consumer, although it cut its weight in the space by 20 bps to 70 bps now. "We lower weights of Britannia, HUL and Titan. We remain constructive on these names although we believe that the sector might go sideways given peak valuations and expected sectoral rotation in the current economic cycle," the brokerage noted.

Pharma: In this space, the brokerage has 100 bps weight each on Dr. Reddy, Cipla, Sun and Lupin Labs.

Insurance and NBFC: In the insurance space, it remains bullish given the long-term opportunity. It is equal weight on HDFC Life while increases weight on SBI life given the huge valuation gap between these names. Among NBFC, it turned positive led by HDFC on the strong outlook in housing demand. However, it turned small underweight on Bajaj Finance due to uncertainty on NPA and growth.

IT: The brokerage liked IT space on strong growth visibility and Reliance Industries on improving traction in telecom and retail business.

Metals: It increases the weight on Hindalco given huge potential in convertor business at Novelis. It also introduced Tata Steel in the model portfolio as strong steel prices and captive iron ore will generate strong cash flows in the medium term.

Top Picks: The brokerage replaces Ultratech Cement with Ambuja Cement in top picks given improved visibility on capacity expansion and 6.6x increase in captive power.

It also included Kalpataru power in top picks given the positive outlook on T&D, Railways/Oil & Gas, deleveraging, a sharp improvement in operational performance of subsidiaries and clarity on reducing pledge by Rs 3-3.5 billion over 1 year.

It notes that L&T, ICICI Bank, Polycab and Dalmia Bharat have little upside to target price post sharp run-up, still retain them in top picks given long-term re-rating potential.