Automotive, Banking, Defense and Aerospace Sectors Will Thrive Under NDA 3.0: Prabhudas Lilladher

India’s economy is on the right track with focus on infrastructure development to drive growth, highlights the ‘India Strategy’ report by Prabhudas Lilladhera, a brokerage firm.

The report indicated that after successful electoral competition and formation of the central NDA government, the government will continue capital expenditure.

The report highlighted that the government will continue to focus on capex-led growth in PLI, roads, ports, aviation, defence, railways and green energy, given a 20 basis points lower fiscal deficit in FY 2023-24, normal monsoons and a ₹2.1 trillion dividend from RBI.

The budget deficit for the 2023-24 financial year will be 5.6%, which gives the government room to act on economic growth and populism. RBI dividend of ₹The 2.1 trillion figure further expanded fiscal space, enabling investments in key sectors such as green energy, electric vehicles and rural development.

However, the report also highlighted the need for the government to focus more on farmers, rural people, the urban poor and the middle class to mitigate the impact of new social policy changes triggered by giveaways in some states during the recent elections.

On the stock market front, the report shows a positive outlook for sectors including automotive, banking, capital goods, defence, hospitals, pharmaceuticals, cement, aviation and discretionary consumption, with increased shares behind capital goods, telecom and cement.

The latest quarterly results showed strong performance in sectors such as automotive, oil and gas, metals, capital goods and pharmaceuticals. While some sectors such as consumer, IT and oil & gas recorded weak results, there is optimism about the growth potential in the automotive, capital goods and pharmaceuticals industries. Mid- and small-cap stocks outperformed, reflecting market confidence in the economy.

According to the report, NIFTY is trading at a 15-year average PE (price to earnings ratio) with 14.9% EPS (earnings per share) CAGR (compounded annual growth rate) from FY 2023-24 to 2025-26.

The report said the NIFTY target for the next 12 months is 25,816 (earlier 25,810). It states that a progressive budget, normal monsoons and strong fund inflows will further overvalue the markets.

NIFTY has shown consolidation with a gain of 5.4% in the last 2 months which were characterized by extreme market volatility during elections, strong DII inflow ₹892 billion, and FII outflows approx ₹449 billion.

The report indicated that the Indian economy remains on solid footing with GDP growth of 8.2% in FY 2023-24, which is ₹2.1 trillion dividend from RBI and mild start of monsoons. The RBI is keeping interest rates unchanged for fear of inflation, although the ECB (European Central Bank) and several other countries have started announcing rate cuts.

The report added that hopes for normal monsoons and a move on the defensive in the current volatile environment have seen some recovery in the FMCG and consumer durables industries. Private banks and IT services are doing poorly.