Stock Market Outlook Report: Bull, Base, and Bear Scenarios for Nifty 50

Summary of Nifty Targets:

• Bull Case: 28,575
• Base Case: 25,977
• Bear Case: 23,379

InCred Equities adopts a cautious stance on the Nifty's trajectory due to delayed RBI rate cuts and elevated expectations around earnings recovery. Political stability, especially with BJP's strong performance in Maharashtra's assembly elections, is expected to reinvigorate government capital expenditure plans.

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Key Market Insights:

Valuation and EPS Analysis

• Forward P/E: Dropped below the 10-year mean, signaling a valuation correction.
• Nifty EPS Trends: 2QFY25 EPS rose 8% YoY but remained flat QoQ. Nifty Bloomberg consensus EPS saw a 3-4% cut for FY25-FY26, with Nifty-200 seeing a milder 2% reduction.

Sectoral Upgrades & Downgrades:

• Upgrades:
  • Pharmaceuticals (Cipla, Ipca Laboratories, Alkem Laboratories)
  • Utilities
• Downgrades:
  • Commodities
  • FMCG
  • Capital Goods

Economic and Market Trends:

• Economic Activity: Seasonal upticks in October-November due to festivals, but broader macroeconomic indicators (electricity consumption, IIP, PMI, loan growth) reflect cyclical slowdowns.
• Rupee and FPI Trends:
  • Significant rupee depreciation against the dollar in November 2024.
  • FPI Outflows: $3.2 billion (1-15 Nov 2024), following $11.4 billion in October.

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High-Conviction Investment Ideas:

Stock Picks with Potential Upside (Up to 94%):

1. Bajaj Finance Ltd
2. Bharat Forge Ltd
3. HDFC Bank Ltd
4. Lupin
5. Tata Steel Ltd
6. Hero MotoCorp
7. Cipla
8. State Bank of India (SBI)

Other Notable Picks:

• TCS (Tata Consultancy Services)
• InterGlobe Aviation
• Maruti Suzuki India
• Cyient DLM
• Petronet LNG
• SBI Card

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Short-Term Strategies and Pair Trades:

To capitalize on a sideways market, the following pair trade ideas were introduced:

• Pidilite Industries vs. Asian Paints
• GAIL vs. Indraprastha Gas (IGL)
• Bajaj Finance vs. Cholamandalam Finance
• ABSL AMC vs. HDFC AMC

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Economic & Fiscal Outlook:

• Capex Targets: The government needs to spend ₹1.2 lakh crore to meet FY25 budgeted targets. However, spending over ₹1 lakh crore per month seems ambitious.
• Macroeconomic Concerns:
  • RBI’s monetary tightening dampens short-term growth.
  • Gradual rural recovery while urban markets slow down.

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Conclusion and Recommendations:

• The Nifty correction phase is expected to persist as macroeconomic challenges hinder EPS momentum.
• Portfolio adjustments favor large-caps and defensive sectors like pharmaceuticals.
• Active pair trade strategies can provide returns amidst market volatility.

InCred Equities emphasizes maintaining a diversified portfolio while focusing on sectors with resilient earnings growth.