Axis Securities has recommended 16 large-cap, mid-cap and small-cap stocks with up to 32% potential

Market Likely to Witness Style and Sector Rotation Axis Top Picks basket delivered an impressive return of 31% in the last one year, outperforming the benchmark Index NIFTY50, which delivered 22% returns in one year, by a notable margin. In Jun’23, the basket inched up further by 2.8%. Furthermore, we are glad to share that our Top Picks basket has delivered an impressive return of 176% since its inception (May’20), which stands significantly higher than the 107% return delivered by NIFTY 50 over the same period. Keeping this in view, we continue to believe in our thematic approach to Top Picks selection.

The Indian market performance has shown resilience in the last couple of months and has outperformed the major global market by healthy margins, thanks to the country’s robust and superior outlook vis-à-vis other emerging economies. India now stands tall as the 5th largest market in the world with a $3.5 Tn market cap. Only the US, China, Japan, and Hong Kong market are currently ahead of India. In the last one year, while the benchmark index NIFTY 50 and the S&P 500 moved up by 22% and 16% respectively, the emerging market index declined by 2%. Furthermore, on the last working day of Jun’23, NIFTY 50 touched an alltime high level of 19189, which was led by a) The revival of the FII flows b) Robust economic growth vs. other EM countries, c) Strong earnings outlook, d) Robust demand across sectors, e) The Banking sector’s much better shape, and f) Positive expectations in the Private Capex cycle. Concurrently, for the first three months of FY24, India witnessed cumulative FII flows of $12.7 Bn.

In Jun’23, the broad-based recovery continued across sectors and, except media, all sectoral indices closed on a positive note. On Mar’23, 33% of the stocks were trading above the 200-day moving average, indicating the market was in the oversold zone. The market, however, has witnessed a sharp recovery since and now 74% of the stocks are trading above 200 DMA, indicating it to be out of the oversold zone. Moreover, the market positioning has now slightly shifted towards Banks and Domestic-cyclical stocks. Domestic plays of FMCG, Auto, Hospitals, and Industrials have slowly started outperforming the market. Adding to that, PSU stocks are holding the performance with 14 PSU stocks currently hovering near their 52W highs.

Q1FY24 Preview: Margins may surprise positively; Domestic-facing sectors are enjoying the economic recovery: Majority of the domestic high-frequency indicators trended higher during the quarter which is likely to translate into good demand momentum for the domestic corporates. In this context, Banks, Consumers, Industrial, and Automobiles are likely to post robust earnings while Q1FY24 remains critical for the IT sector as it will set the tone for FY24 demand. Moreover, margins for the Consumer sector are likely to post positive surprise, thanks to the recent cool-off in the raw material prices. The commentary on the demand momentum, margin recovery, and the pickup in the rural demand will be keenly watched by the street. Against this backdrop, the market is expected to witness sector and style rotation moving forward. Currently, we foresee FY24/25 NIFTY Earnings at 920/1040 with a growth expectation of 16%/13% respectively. We will revise our estimates after the earnings season.

We believe the macro will continue to drive the market direction moving forward, while all four major styles have given double-digit returns in the last one year, the Momentum theme has given the highest return with the recent rally in the equity market. We believe the market is likely to witness style and sector rotation in the upcoming quarters. The theme ‘Growth at a Reasonable Price’ continues to look attractive on account of the domestic play of good Rabi season payout, the cool-off in commodity prices and inflation, rural recovery, and the expectation of margin recovery in the upcoming quarters. With the robust GDP data, the market positioning is expected to shift toward domesticoriented themes comprising Banks and Domestic-cyclical stocks. On the rural front, the upcoming Monsoon will play a critical role in rural growth and its broad-based recovery.

Keeping these latest developments in view, we have made one change to our Top Picks recommendations. This includes booking profit in Dalmia Bharat and adding Rites Ltd. (Railways Infra consultancy). Our modifications reflect the changing market style and shift towards superior-quality and growth-oriented stocks.