NIFTY Dec’23 Target is 20,200. Top 16 stock picks to buy for up to 31% upside: Axis Securities

We Maintain Dec’23 NIFTY Target to 20,200

Base case: The Indian economy stands at a sweet spot of growth and remains the land of stability against the backdrop of a volatile global economy. We continue to believe in its long-term growth story, supported by the emerging favourable structure as increasing Capex enables banks to improve credit growth. Strong earnings trajectory continues in the NIFTY 50 universe. We foresee NIFTY EPS to post growth of 17%/13% in FY24/25. Post Q1FY24, we have made marginal upgrades of 0.9%/0.8% to our FY24/25 EPS expectations. Thus, we maintain our Dec’23 Nifty target at 20,200 by valuing it at 20x Dec’24 earnings. The current level of India 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 investors maintain good liquidity (10%) to 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.

Bull case: In the bull case, we value NIFTY at 22x, which translates into a Dec’23 target of 22,200. Our bull case assumption is based on the overall reduction in volatility and the success of a soft landing in the US market. Currently, we are near the peak of the rate hike cycle and may expect only one rate hike in the US market before the US Federal Reserve takes a pause. If the market sails through the next 1 or 2 quarters smoothly, we would likely see the next level of triggers along with money flowing to EMs. This, in turn, would increase the market multiple.

Bear Case: In the bear case, we value NIFTY at 18x, which translates into a Dec’23 target of 18,200. We assume the Russia-Ukraine war to prolong which would continue to pose inflationary pressure on the developed world. Currently, we are near the peak of the rate hike cycle and may expect one rate hike in the US market before the US FED takes a pause. The market has not seen such levels of interest rate hike in the recent past and hence, chances to go wrong have increased significantly. This would translate into a slowdown or heightened recession in the developed market, which will impact the export-oriented growth in the domestic market. It will consequently pose challenges to the earnings and market multiple of the domestic market.

Based on the above themes, we recommend the following stocks: ICICI Bank, Maruti Suzuki India, State Bank of India, Lupin ltd, Federal Bank, Varun Beverages, Ashok Leyland, PNC infra, ITC, Relaxo, CIE Automotive India, Bank of Baroda, CCL Products (India), CreditAccessGrameen, JTL Industries and Kirloskar Brothers ltd