NIFTY Target Upgraded To 17,200 + Best 15 Stocks To Buy Now: Axis Securities Report

Structural trends intact; Upgrade Nifty Target to 17,200

Axis top picks have delivered a solid 60% return since introduction in May 2020. The month of February turned out to be a roller coaster ride with the first trading day of the month seeing a ~5% rise in benchmark NIFTY Index (Union Budget Rally) and the last day seeing a correction of ~4%. Even though the month saw a higher volatility than the long-term average, the market trend was constructive. The trend across the core sectors was very strong during the month which is a significant positive. While the market has seen positive traction during the month but there are marked changes in the global interest rate cycle and doubts are being cast on the ‘Lower for Longer’ trend of interest rates.

There is little doubt about the 2020 pandemic rally was been driven by significant FII buying which was driven by multiple factors including the low-interest rate regime. The upward shift of interest rates will present short term challenges for the market but the structural growth story for India is intact. The earnings for Q3FY21 were very robust with 38 out of the 50 NIFTY companies beating consensus expectations. Consequently, our FY21/22 earnings forecast have been upgraded by 9%/8% respectively. We have also upgraded by FY23 earnings forecast 7% translating to NIFTY earnings of 780. Our December NIFTY target also moves up by 7% to 17,200. We have maintained our top pick recommendations intact. Our key ideas are as follows:

India’s structural trends are solid; Yields only a short term challenge: The Q3FY21 GDP grew by 0.4% YoY after registering two consecutive quarters of sharp decline. Interestingly, the Gross Fixed Capital Formation was one of the key drivers of the GDP. Apart from inline GDP numbers, the CPI for the month of January also cooled to 4.1% vs 4.6% in the month of December, the recovery in CPI is primarily due to a sharper decline in vegetable prices. While global inflation is rising on account of multiple factors, India’s inflation composition is also markedly different as it is dominated by food inflation.

Inflation in India has started cooling off from the months of January and the next leg of food inflation is likely to start in the second half of 2021. We expect inflation to remain in the ~4% zone for 2021 which means that RBI’s accommodative policy stance will continue and support economic growth. Moreover, the corporate earnings are seeing strong traction with BFSI’s share in earnings rising over the next two years which is a significant positive.

Thus, even if the yields were to rise further globally, there is a lot of comfort in the India earnings growth story which can gain further traction in the forthcoming quarters.

Cyclical and Rate sensitive sectors including BFSI hold the key: A closer look at the earnings upgrade for FY21/22 indicates that the bulk of the upgrades have come from core sectors which include 50% earnings upgrade for the Metals sector for FY21. BFSI has also seen double-digit upgrade and so has the cement sector. The earnings contribution of the BFSI sector is also rising to 38% in FY23 from the current 36% in FY21. This is significant considering the already strong earnings trajectory of 23% CAGR for FY21-23E. The banks will still deliver solid returns in the next one year as there is valuation comfort in a number of stocks including the large PSU banks like SBI.

Value and Growth will remain the dominant themes: Value as an investment style has outperformed all the other styles in the last one year by a significant margin but growth has started to catch up. We believe both Value and Growth will outperform the market in the next 12 months. We also find that Value is seeing tremendous traction in the beaten-down sectors. PSU banks have delivered negative returns in both 2019 and 2020 but have staged a major catch up rally in the last 3 months. PSU banks are up by a whopping 90% in the last three months and continued their outperformance in the last one month. We believe that this trend is sustainable in 2021 as many are coming out of a prolonged period of underperformance, trade at attractive valuations and offer the comfort of long-term dividend payouts.

Raising the NIFTY target to 17,200: As we have raised our earnings estimates for FY21/22/23 by 9%/8%/7% respectively, our NIFTY target has also increased in line with our earnings upgrade. Our target multiple at 22x on FY23E earnings remains unchanged as we are seeing consistent earnings recovery. This is the second consecutive quarter of a strong earnings upgrade. The earnings uptrend cycle is likely to persist in the forthcoming quarters providing comfort in the current valuations.

Based on the above themes we recommend the following stocks:

ICICI Bank, Manappuram Finance, Canfin Homes, Federal Bank, Bharti Airtel, HCL Tech, Tech Mahindra, Varun Beverages, Relaxo Footwears, Amber Enterprises, NOCIL, Endurance Technologies, Steel Strip Wheels and Lupin, JK Lakshmi Cement