With $35 billion gains in oil and gold import bills, the brokerage says there is scope for another stimulus package, which can coincide with the festival season or once the outbreak comes under control.
The market has been climbing higher and higher amid bouts of consolidation and corrections, with the Nifty50 going past its six-month high and gaining 53 percent from the lows of March 24.
Liquidity is not the only reason for this upsurge. Improving economic environment, rolling back of more restrictions in “Unlock 4.0”, government measures, progress on the vaccine front and improved June quarter earnings, too, have lifted sentiment.
The Nifty50 has rallied from 7,511 on March 24 to over 11,500 now, which surprised the Street and valuations turned expensive but given the expected earnings and economic growth in FY22 & FY23, Prabhudas Lilladher expects Nifty to go past the 14,000-mark by September 2021.
In the quarter ended June 2020, aggregate sales were lower than estimates by 1.4 percent, EBIDTA lower by 1.1 percent due to negative operating leverage and PBT (comparable) by 2.8 percent, the brokerage said.
“Auto, metals, infra, consumer durables and aviation reported sales beat while Oil and Gas and Media were worst placed than estimates. EBIDTA beat was strong for agrochem, consumer durables, infra and pharma as cost-cutting benefits neutralised negative operating leverage to some extent," it said.
The brokerage says the Nifty EPS has seen an increase of 12.1 percent for FY21 while FY22 and FY23 EPS has been upgraded by 14.3 percent and 14.8 percent. "The Nifty EPS is (now) estimated at Rs 483, 661 and 784 for FY21/22/23."
Prabhudas Lilladher now estimates a growth of 9.5 percent in the Nifty EPS in FY21, 37 percent in FY22 and 18.6 percent for FY23.
"Our estimates are higher than consensus by 3.9 percent for FY21 but lower by 2.3/4.4 percent for FY22/23. The Nifty is currently trading at 20.9x 1-year forward EPS, which shows 7 percent premium to the 10-year average of 19.5. We value Nifty September 2022 EPS of Rs 732 at a 10-year average of 19.5 and arrive at a 12-month target of 14,102," the brokerage said.
It has increased its target by 18.3 percent compared to 11,919 based on 19.7x June 2022 EPS of Rs 605 earlier.
Like others, Prabhudas Lilladher also expects rural demand recovery to sustain, given the better monsoon, kharif sowing and an increase in spending on the rural job scheme MNREGA.
Though doubts are being raised on the sustenance of this recovery, the brokerage said there are enough levers like 1) bountiful monsoons, high water reservoir levels and good crop sowing (up 7 percent YoY) 2) high food inflation (8.7 percent) and 3) wealth effect (gold prices up 40 percent YoY and 71 percent in the two years), which will sustain strong rural demand in the coming quarters.
Government spending is the key to the revival of the capex cycle as private capex cycle recovery looks uncertain, given that capacity utilization during pre-COVID had declined to 65 percent and the current levels are 75-80 percent of pre-COVID levels (around 55 percent of aggregate), it said.
Last week, the government announced Unlock 4.0 guidelines, continuing with a gradual easing of lockdown curbs.
The sectors that saw maximum pain are expected to see more buying interest in the coming days, the brokerage said.
While the unlock process had played out in several sectors, segments like travel, tourism, multiplexes, QSR, apparel/accessories retail, consumer finance and aviation were some of the emerging themes in Unlock 4.0, it said.
“We believe this would present opportunity in companies like Inox, PVR, VIP, IRCTC, Jubilant FoodWorks, Titan, Westlife Development, Page Inds, Bata, Relaxo, ABFRL, SBI Cards, BAF, InterGlobe Aviation, etc in the coming months," Prabhudas Lilladher said.
The Indian economy witnessed a 23.9 percent contraction in the quarter ended June 2020 along with tepid GST collections and inflation above the RBI’s mark of 4 percent (+/- 2 percent).
Though improving utilisation and Index of Industrial Production (IIP) were positive, the month-on-month decline in GDP for two months looks worrying post-pent-up demand of June 20, Prabhudas Lilladher said.
Looking at $35 billion gains in oil and gold import bill, the brokerage said there is scope for another stimulus package, which could coincide with the festival season or once the outbreak comes under control.
The government has a few weeks ago announced a relief package, which is around 1 percent of GDP in incremental terms.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.