Revised Nifty target is at 17,930 (22x P/E on FY23E EPS of Rs 815). Sensex target level is 59,800: ICICI Direct

Positivity remains, stock specific action to prevail…

Indian markets are scaling new highs primarily driven by swift economic recovery post abating of second Covid wave and increasing pace of vaccination domestically. Corporate earnings were also resilient in Q1FY22 (April-June 2021). At the Nifty index level, excluding financials, net sales decline was limited to 7.5% on a QoQ basis with PAT decline at 14.5% QoQ. The management commentary, however, was optimistic and hopeful of a strong rebound in rest of the year (FY22E). Other macroeconomic indicators in terms of GST collection, e-way bill generation, peak power demand also point to better-than-anticipated economic rebound. With growth capex on the anvil both by the public as well as private enterprises, we expect a broad based economic recovery, going forward. We expect the present market up move to continue, with small caps, midcaps leading the gains going forward. As a structural bet in the market, sectorally, our preference would be towards IT (driven by increasing digital spends), capital goods (capex-linked) and CRAMs oriented pharmaceuticals/chemical space.

Going forward, incorporating the revised earnings post Q1FY22, our aggregate index earnings gets upgraded by ~2%. We now expect index earnings to grow at a CAGR of 25.7% vs. 24.2% earlier over FY21-23E. Retaining the same PE multiples, we now value Nifty at 17,930 i.e. 22x PE on FY23E EPS of | 815/share. We look forward to more meaningful upgrades in Q2FY22E. Present PE multiples are justified given the changing composition of the Nifty in favour of new economy/consumption stocks.
Sectoral Earnings

Going forward, double digit earnings growth (25.7% CAGR) for the index over FY21-23E will be led by the auto space (low base), capital goods domain, metals space (firm product realisations and healthy profitability) and index heavy BFSI space, which also includes the insurance sector.