The Nifty has rallied more than 12 percent in 2019, so far, to touch record highs but heading into the new year, the upside remains limited, ICICI Securities has said in a report.
The brokerage firm has 13,100 as the Nifty target for December 2020, which translates into an upside of a little over 7 percent from December 18 closing of 12,221.
“We expect Nifty50 earnings CAGR of 17% during FY19-FY21 and apply a one- year forward multiple of 17.7x (+0.5 sd) to arrive at our Dec’20 target of 13,100,” said the ICICI Securities report.
Absolute returns are likely to be in high single-digit, it said. During CY20, the Nifty is likely to be constrained by the sharp run-up in stocks during Q4CY19, thereby stretching equity valuations.
Largecaps that remained top performers in 2019 could lose some sheen. ICICI Securities is of the view that small and micro-cap stocks are likely to do well in the next 12 months.
“We expect small/micro-caps to outperform midcaps as the former asset classes have a much higher margin of safety in terms of the risk-spread over largecaps,” said the note.
The top picks from ICICI Securities include Bandhan Bank, IndusInd Bank, Cholamandalam Finance, LIC Housing, HDFC Life, SBI Life, Jubilant FoodWorks, Westlife, Trent, Greenply Industries, Dabur India, Balkrishna Industries, TVS Motors, L&T, Engineers India, Bharti Airtel, GSPL, Dr. Lal Pathlabs, Tata Steel, UltraTech Cement, and Shree Cement.
In terms of sectors, the brokerage firm is overweight on sectors such as financials, consumer discretionary and industrials.
“We continue to expect accelerated formalisation in retail categories post the corporate tax cut and better execution-led market share gains. Hence the relative preference for Discretionary,” it said.
For staples, the brokerage expects volume deceleration to continue in 2020, hence a strong bottom-up thesis is imperative for outperformance.
For telecom, it sees a recent tariff hike as a significant headwind. Consumer stock performance in 2019 was polarised, where staples largely lagged (Nestle was the only significant outperformer) while discretionary and paints witnessed strong stock returns.
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