Large banks to offer the highest alpha; Nifty target seen at 23,200 by the end of CY2024

Stock market news, market at record high NSE BSE: Indian equities, amid a comeback in foreign institutional inflows, hopes of political as well as policy stability, and renewed optimism that the US Fed is done hiking rates, have shown recovery. The Nifty50 climbed 5.5 per cent and closed above 20,000 levels in November. Overall, the headline index has gained 15.6 per cent so far in CY23.

The buoyancy in the Indian markets during November was witnessed at a time when all major markets also logged significant gains of up to 11 per cent during the same window.

Motilal Oswal Financial Services' (MOFSL) report highlighted that all major economies, including Brazil (+13%), Korea (+11%), Taiwan (+9%), the US (+9%), Japan (+9%), MSCI EM (+8%), India (+6%), Indonesia (+5%), the UK (+2%), and China (+0.4%), ended higher in November.

The brokerage has maintained its sectoral allocations and weights, relying on the sectors that have shown growth potential to drive its stock selection framework. MOFSL remained overweight on financials, consumption, industrials, automobiles, and healthcare while maintaining an underweight stance on metals, energy, IT, and utilities and a neutral outlook on telecom in its model portfolio.

Nifty is trading at a 12-month forward P/E ratio of 18.4x, which is at a 9 per cent discount vs. its long-period average (LPA), noted the brokerage.

Among the large-caps, the brokerage has listed ICICI Bank, ITC, Bajaj Finance, L&T, HCL Tech., M&M, Titan, Avenue Supermarts, Ultratech Cement, ONGC, and Zomato as its top picks. Top-buy ideas from the mid-and small-cap spaces are Indian Hotels, Angel One, Lemon Tree Hotel, Ashok Leyland, Godrej Properties, Sunteck Realty, Metro Brands, Global Health, PNB Housing, and Craftsman Auto.

Meanwhile, ICICI Securities said in its strategy report that the stars align for a bull market. It sees favourable cyclical factors to accelerate going through the next year and hence has raised its bets on cyclical stocks. Capex-driven stocks (infrastructure, manufacturing, commodities, utilities, etc.) may be the biggest beneficiaries, the brokerage said.

Further, it said that the current capex cycle may have additional drivers in the form of new-age sectors such as data centres, AI infrastructure, EVs, EMS manufacturing, green energy, etc.

Large banks to offer alpha

The brokerage expects large banks to offer alpha returns given the fact that the rising GDP trajectory (driven by the capex cycle) may not be possible without a re-leveraging cycle, i.e., credit offtake will strengthen. In general, financial services can benefit, as the brokerage pointed out.

Nevertheless, for the defensive, the brokerage is underweight and said the defensives remain stuck in a high valuation and slow growth outlook environment.

“Rural and agriculture sectors are likely to be weighed down by El Nino effects that may continue into next year, thereby impacting broad-based consumption. IT exports could see challenges as developed market (DM) economies slow down next year, although a sharp recession-like situation seems to have been averted,” the brokerage added.

For 2024-end, the brokerage has set the Nifty target at 23,200 and listed its top picks as below:

Large caps: L&T, Bharti, Coal, ONGC, M&M, Indigo, HDFC Bank, IndusInd Bank, and SBI

Mid- and small caps: HPCL, CIE Automotive, InfoEdge, PVR Inox, Greenpanel, Astra Microwave, Jubilant Foodworks, and Jyothy Labs.

What technical charts suggest for Nifty in the short to midterm?

The Nifty has been in a solid uptrend on the monthly charts. The index took out a 19-month consolidation, which pushed it towards 20,960, which was its all-time high. Though Nifty saw some correction but not a major one during the year, before continuing its major uptrend, we may see a small correction until 20,000 in the coming time, noted Jigar Patel, Sr. Manager, Equity Research, Anand Rathi.

In 2024, Nifty's major support is expected to be around 20,000, followed by 19,500. Resistance is seen near 21,500–22,000 (21,500–22,000 are levels where major extreme harmonic ratio clusters are seen), Patel added.

Further, the expert has advised booking profits in some of the sectors and stated that, apart from Nifty IT, other sectors like auto, FMCG, pharma, and metals are hovering near the top and, hence, could see profit booking in the coming months. Investors and traders need to be very stock-specific ahead and keep booking profits at regular intervals, the expert said further.