Style & Sector Rotation: Key to Navigate the Current Phase
Axis Top Picks Basket delivered excellent returns of 12% in the last year against an 8.2% return posted by Nifty 50 over the same period, beating the benchmark by a wide margin of 3.8%. The previous four months were highly volatile for the market, and a notable mixed performance was seen across sectors, market caps, and style indices. The Axis Top Picks basket declined by 6.5% in the last three months, led by volatility, while the Nifty 50 was down by 3.4% during the same period. It gives us immense joy to share that our Top Picks Basket has delivered an impressive return of 301% since its inception (May’20), which stands well above the 153% return delivered by the NIFTY 50 index over the same period.
Based on the recent developments, we have made multiple changes to our Top Picks Recommendations. This includes the removal of Aurobindo Pharma, Gravita India, Sansera Engineering, Chalet Hotels and J Kumar Infra, and the addition of Trent Limited, Hero Motocorp, Max Healthcare, and Indian Hotels. Our modifications reflect the changing market style and slight shift towards the consumption and large caps play.
We maintain our Dec’25 Nifty target at 26100
Base case: We continue to believe that the Indian economy lies in a sweet spot for growth and continues to be a stable haven amidst the volatility of the global economy. We continue to believe in India’s long-term growth story, driven by the country’s favourable structure, credited to the increasing Capex and the consumption boost in the recent Union Budget which is enabling banks to improve credit growth. This would ensure that Indian equities will easily manage to deliver double-digit returns in the next 2-3 years, supported by double-digit earnings growth. Against this backdrop, we foresee Nifty earnings to post excellent growth of 14% CAGR over FY23-27. Financials will remain the biggest contributors for FY25/26 earnings. In our base case, we assume the continuation of the political stability in a coalition government, faster GDP growth rate vs. other emerging markets, stable monsoon, stable oil prices, and one to two rate cuts of 25bps each in the next one year. In our base case, we roll over the Nifty target to Dec’25 to 26,100 by valuing it at 20x on Dec’26 earnings. The current level of India’s VIX is below its long-term average, indicating that the market is currently in a neutral zone (neither panic nor exuberance). While the medium to long-term outlook for the overall market remains positive, we may see volatility in the short run, with the market responding in either direction. Keeping this in view, the current setup is a ‘Buy on Dips’ market. We recommend that investors maintain good liquidity (10%), use any dips in a phased manner, and build a position in high-quality companies (where the earnings visibility is quite high) with an investment horizon of 12-18 months.
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