Gandharv Anand of CapitNbulls, a franchise under Motilal Oswal Financial Services Ltd., sees an upside target of Nifty in the range of 24,550 to 25,350 by the end of December 2023 (base case scenario). The targets for the index have been revised upwards due to an upward revision in the 15- year average PE (18.8x) with an EPS of 1,342.
Technically, we need a strong closing above the levels of 22,124 to initiate fresh longs. With ADX near historic highs and weekly RSI divergence, I’m not comfortable to enter fresh trades here. Even on Tuesday (February 27, 2023), the market breadth remained very poor, and more than 53 per cent of stocks were trading 3 per cent or lower.
At present, there is a froth in the valuations of mid-caps and small caps; however, large caps are fairly priced to be added to any dips. Midcaps are trading at a price to earnings ratio of 27x, and small caps are trading at a price to earnings ratio of 33x. Such high levels are not at all comfortable for making an investment.
Mr. Anand is continuing to be overweight in the private banking and healthcare sectors while being underweight on fast-moving consumer goods, as demand is lacklustre in rural areas and credit lines have yet to loosen up. Despite all budgetary support and a 12-month lag before policies have a significant impact, rural demand will remain subdued. Normal monsoons and lower inflation may lead to rising rural demand, but we expect a delay of 6–8 months.
The private banking sector is fairly priced and available at price-to-book levels of 1.7x. From the past, it is evident that whenever banks have reached P/B levels of 2x, they tend to outperform the broader market. The reason for my overweighting on banks is due to sustained credit growth and asset quality, while NIM (net interest margin) seems to have peaked out. My top pick at the moment for the private banking sector is ICICI Bank.
Apart from the banking sector, Mr. Anand believes that investors should also focus on the healthcare sector, as players can benefit from soft API prices and stable US pricing while domestic growth is strong. My top pick in the healthcare sector will be Narayana Hrudayalaya. The company is fairly priced from an investment point of view, with a 63.3 percent CAGR over the previous 5 years. It has added 47 healthcare facilities, 2 hospitals, 6,800 beds, and 5 heart centres, and the MD of Biocon, Mrs. Kiran Mazumdar Shaw, is one of the active promoters.
Talking about the IT sector, Mr. Anand suggests starting to accumulate IT, especially for companies involved in data analytics, artificial intelligence, enterprise resource planning, supply chain management, etc. IT stocks can start delivering returns in the quarters to come. To name a few, TCS and Latent View will be my recommended picks for the upcoming quarters. A prominent factor for infotech companies will be the USD inflow from India’s inclusion in the global bond index.
This can favour the rupee and make it stronger in terms of the dollar. Transactions have already started taking place in supranational bonds. In the passenger vehicle segment, investors should focus solely on Maruti, M&M, and Tata Motors, as margin improvements and strong order books at Tata Motors will benefit the momentum of the auto stocks.
Mr. Anand remains underweight in the chemical business due to weak global demand for Indian chemicals and increased Chinese production and competition. Moreover, the Red Sea crisis has added to freight costs (though they remain lower than the COVID levels).
Gandharv Anand is a Financial Broker at Motilal Oswal Financial Services Ltd.