Prabhudas Lilladher expects the Nifty to trade in a range of 9,640-10,500 in the near term.
The Nifty50 has so far corrected nearly 9 percent from its record high of 11,171.55 touched on January 29 (2018), especially after Union Budget. Global trade war concerns, early Fed rate hikes, imposition of long term capital gains tax, political uncertainties after Telugu Desam Party exited NDA government etc dented market sentiment.
The Nifty Midcap index lost nearly 13 percent from its all-time high while the market was very strong in 2017, when the Nifty50 rallied 29 percent and Midcap gained 50 percent.
This correction was long overdue as the market has been trading at a premium to the average one year forward multiple for quite some time, but the earnings and macros started improving and are expected to improve faster going forward.
The market trades at a one year forward multiple of 17.9x, slight premium to the 10 year average PER of 17.0x.
The year going ahead is expected to be volatile due to many events and reasons - state elections, Fed rate hikes, general elections 2019, trade war, earnings etc.
Prabhudas Lilladher believes that given the current sentiments, the large supply of paper in the pipeline, the market is unlikely to trade ata much higher multiple in the near term.
In fact with the IPO/QIP market ready to see huge supply of paper, the research house expects to see the market remaining soft for the near term till the time the market is able to absorb the supply.
Hence, it revised trading range and expects the Nifty to trade in a range of 9,640-10,500 in the near term.
The MSCI India premium relative to MSCI Asia (ex-Japan) trades at 33 percent premium against the ten-year average of 39 percent, it said.
Prabhudas Lilladher said it expects Q4FY18 to see better earnings and FY19 numbers are also expected to be better.
On the GDP growth, it feels India is expected to end the year with a strong growth of 7.0 percent in GDP.
"While the Q1FY18 growth was at 5.7 percent, the Q2FY18 was at 6.3 percent, the Q3FY18 is estimated to be at 7.0 percent and the Q4FY18 is expected to be the strongest of all quarters at anything between 7.5-8.0 percent, leading to the overall GDP growth for FY18 at closer to 7.0 percent," it explained.
FY19 is expected to see a better performance with the growth estimated to be better at around 7.4 percent, according to the research house.
Even the IIP (index of industrial production) have been strong for the last few months at high single digits. IIP for January 2018 was at 7.5 percent and has remained above the 6 percent level for the last four months.
With a lower base, it expects Q4 to see better IIP growth.
Post the recent market corrections, Prabhudas Lilladher has added Petronet LNG, Rallis India and Navneet Publications to its top picks list, where the fundamentals remain strong and the stocks have seen sharp corrections.
While SBI had underperformed consequent to the overall underperformance of the PSU banks, it is still maintaining stance of a Buy on the stock.
Following is the list of top 24 picks from Prabhudas Lilladher, which include 16 largecaps, 2 midcaps and 6 smallcaps which can give up to 168 percent return over next 12 months:
Largecap stocks include HDFC Bank, ITC, Hindustan Unilever, Maruti Suzuki, State Bank of India, L&T, ICICI Bank, Axis Bank, IOC, Yes Bank, Tata Steel, Britannia Industries, Hindalco Industries, M&M, Petronet LNG and Aurobindo Pharma.
Midcaps are Jindal Steel & Power and Indraprastha Gas while smallcaps are Sadbhav Engineering, JK Lakshmi Cement, Rallis India, Heidelberg Cement, Thyrocare Technologies and Navneet Publication.
