Analysis and Outlook of Indian Stock Market Post Lok Sabha Election Results 2024

Indian Stock Market Poised for a Dream Run: Nifty 50 Target at 25,816, Says Prabhudas Lilladher

After a period of heightened volatility during the Lok Sabha election results in 2024 and a significant selloff by overseas investors, the Indian stock market indices, Sensex and Nifty 50, are now trading around record high levels. The recent uncertainty surrounding the elections seems to have dissipated with the formation of a National Democratic Alliance (NDA) government supported by around 300 members of Parliament.

Analysts believe that the success of the Bharatiya Janata Party (BJP) and Prime Minister Narendra Modi in running an alliance government will be put to the test in the coming days. However, the continuity in key ministries is seen as a positive sign for the market.

Amnish Aggarwal, Director – Research at Prabhudas Lilladher, expects the NDA government to maintain its focus on capex-led growth in sectors such as PLI, Roads, Ports, Aviation, Defence, Railways, and Green energy. The lower fiscal deficit in FY24, normal monsoons, and a dividend of ₹2.1 lakh crore from the Reserve Bank of India (RBI) are expected to support this growth trajectory.

Despite the positive outlook, Aggarwal also anticipates an increased focus on Farmers, Rural, urban poor, and the middle class by the NDA government to counter the impact of recent social engineering and freebies-led reversals in certain states.

In terms of sectoral preferences, Aggarwal remains positive on Auto, Banks, AMCs, Capital Goods, Defence, Hospitals, Pharma, Cement, Aviation, and Discretionary consumption. He believes that a progressive Union Budget, normal monsoons, and strong inflows will further boost the markets.

Looking at the performance of various sectors in the fourth quarter of FY24, Travel, Chemicals, HFC, and Media companies outperformed in terms of sales, while Telecom and Oil & Gas lagged behind. Banks, Capital Goods, Cement, Chemicals, and Media showed strong performance in terms of EBITDA, while Building materials, Telecom, and Consumer faced challenges. Cement, Capital Goods, Chemicals, Oil and Gas, and Travel sectors showed positive results in terms of PBT.

The Nifty 50 is currently trading at 19.2x 1-year forward EPS, which is in line with the 15-year average of 19.2x. The PE ratio has increased from 18.2 to 19.2 in the last 2 months.

In its base case scenario, Prabhudas Lilladher values Nifty at the 15-year average PE with a 12-month target of 25,816. In the bull case, the brokerage firm values Nifty at a 5% premium to the average PE and sets a target of 27,102. In the bear case, Nifty is expected to trade at a 10% discount to LPA with a target of 23,235.

In its Model Portfolio, Prabhudas Lilladher has made adjustments to its weightings, reducing positions in certain stocks while increasing exposure to others. The brokerage firm is overweight on Auto, Banks, Capital Goods, Consumer, Healthcare, and Telecom sectors, while being underweight on IT, Metals, Diversified financials, and Oil and Gas. It has also made changes to its High Conviction Picks, adding BEML and ITC while removing Safari Industries, Navneet Education, and Grindwell Norton.

Overall, the outlook for the Indian stock market appears positive, with expectations of sustained growth and potential re-rating of markets in the coming months. Investors are advised to consult with certified experts before making any investment decisions.