Model Portfolio Of Large-Cap & Mid-Cap Stocks By ICICI-Direct

Outperformance continues across all portfolios…

•We prefer companies with sound business fundamentals. This forms the core theme of our portfolio. Our indicative large cap equity model portfolio has continued to deliver an impressive total return (inclusive of dividends) of 112.3% since its inception (June 21, 2011) vis-à-vis the index return of 81.6% during the same period, an outperformance of ~31%. Total return of our indicative midcap portfolio is 183.6% vs. benchmark return of 69.8%

•On the market outlook front, we remain structurally positive on the Indian economy and equity market over the medium to long term horizon. While the economic recovery could be U shaped, we remain a firm believer of the fact that the market, being a leading indicator, is more likely to witness a V-shaped recovery

•The market is yet to gain clarity on the extent of the economic damage both in terms of time as well as quantum. Moreover, as further economic data points become known, further clarity should emerge on economic dislocation. This is what is reflected in the market weakness, as seen now. We expect the volatility to continue in the near term keeping the market in a nervous mode for the time being

•Covid-19 came in as a black swan event with far reaching implications for businesses worldwide. The Indian economy is no exception with a stringent 21-day lockdown period under way. With almost nil manufacturing activity in this 21-day period and slow ramp up, thereafter, amid subdued consumer sentiment, we downgrade our Nifty earnings estimates to the tune of 4% for FY20E, 18% for FY21E and 13% for FY22E. Incorporating the downward revision, we now expect Nifty earnings to grow at a CAGR of 13.2% in FY19-22E vs. expectation of 18.6% CAGR in the past

House view on Index

In terms of earnings, we downgrade our earnings estimates for the Nifty to the tune of 18% for FY21E and 13% for FY22E. Incorporating the downward revision, we now expect Nifty earnings to grow at a CAGR of 13.2% in FY19-22E vs. expectation of 18.2% CAGR in the past. We, however, do expect further downward revision in earnings, given the extended lockdown and its impact. The valuations for the Nifty have corrected more than anticipated with the Nifty now trading at 13.3x P/E on FY22E numbers vs. its one year forward average P/E multiple of 15x.

Valuing the Nifty in tandem with its long period averages, we now value the Nifty at 10250 i.e. 15x P/E on FY22EPS of Rs 682.