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Emkay Global Financial expects Nifty to post an 11 per cent return in 2024 and SMIDs (small and mid-cap stocks) to outperform.
“Our model portfolio focuses on large-/mid-caps and we are UW on Financials and OW on Consumer Discretionary,” it said in a research report.
According to Emkay Global, key themes for 2024 are rate cuts, the budget and reform, and probable revival in mass segment spending. Earnings growth should continue in the mid-teens with rising ROEs. SMID earnings growth should exceed the Nifty and drive further outperformance.
Rate cut hopes
Rate cuts dominate conversations for CY24, it said in the note. “We believe the Fed would cut in 3QCY24 and RBI would follow suit almost immediately. This would drive a re-rating in the markets which would be visible more in SMIDs than the Nifty. A BJP win in the April-May national elections is almost a done deal and focus is on the FY25 budget, with manufacturing and infrastructure the key themes. We also see possibility of a recovery in mass spending. This is not certain, but we think it is worth taking some exposure to play this.”
Dad-bod shaped return
The domestic brokerage expects an 11 per cent return for the Nifty in 2024, with the index settling at long-term mean valuations. Returns should be dad-bod shaped – bulging in the middle of the year through April-September, with relatively subdued quarters at both ends.
SMIDs should continue to outperform, with better earnings growth and momentum in return ratios. “The upside is that the valuation overshoots on continued optimism, while the key risk is a hard landing in the West which would trigger earnings downgrades. India would be relatively better off than most other countries, but absolute returns could still be marginally negative,” it added.
Discretionary and Materials to shine; UW on Financials
However, Emkay Global is underweight (UW) on financials (our big contrarian call), consumers, and technology, as this is a year for high-growth sectors. “Our key overweight (from our coverage universe) is consumer discretionary, primarily autos. Some of our key picks are Hero Motocorp, Tata Motors, Zomato, UltraTech Cement, and Ambuja Cement. Our separate list of key SMID ideas includes JK Tyre, Aditya Vision, and Saregama. Our top sells are Chola Finance, Jubilant FoodWorks, LTIMindtree, Britannia, and Colgate,”
Market Internals
Emkay Global, however, sees little risk to the 14.5 per cent FY25 Nifty EPS growth. Banks are vulnerable because of margin pressures after the RBI rate cuts, but this could be offset by manufacturing margins if commodity prices stay soft. FY26 forecasts are at 13.7 per cent, which we think is a little vulnerable – some sectors may see cyclical downturns by then, and commodities are unpredictable that far out.
“A notable feature is that ROEs are expected to stay robust through this cycle. Market valuations are reasonable at more than 0.5x the historic mean, and we see risk once it touches +1SD; SMID valuations are ruling above the Nifty, a trend we believe will persist, though SMID index valuations are unreliable due to granularity and lack of reliable forecasts,” the note said.
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