Despite stretched valuations, there is still upside in cyclicals

The ongoing bull run in the Indian markets has made it the best-performing stock market across the globe. The ongoing rally is fueled by the revival in the level of activities and many economic indicators reporting strong traction, increased pace of vaccination, the global flow of liquidity Indian equity markets are on a one-way rally over the span of the last 18 months. In fact, global wealth management firm Credit Suisse believes that the premium for the Indian equities is expected to continue given the market’s improved fundamentals.

There seems to be nothing stopping the bulls despite Hints of starting QE (quantitative easing) tapering soon by the US Federal Reserve coupled with the Evergrande crisis in China had little impact on the Indian bourses.

ICICI Securities believes that market resilience reflects strong investor sentiment driven by expectations of a strong cyclical economic recovery as the third wave impact of covid appears underwhelming, while the vaccination rate for India has surprised positively. On the policy front, the government continues to be pro-growth with incremental announcements (telecom reform, bad bank and PLI auto), while reaping the benefits of reforms undertaken in the past such as Digital India, GST, RERA etc. However, the brokerage raised an alarm on the rise in commodity prices in Sep’21 continues to be a risk to inflation.

“As capital markets go beyond liquidity support from central banks, investor focus is shifting towards growth revisions, which has a huge underpinning on how the investment cycle pans out,” noted a report released by ICICI Securities.

Valuation comfort in some pockets

According to ICICI Securities consensus fundamental price targets are indicating that upside potential, despite peak valuations of headline index levels, still exist in stocks within cyclical and capital-intensive defensive space – commodities, financials, utilities, healthcare, auto, media, industrials (selectively materials) and telecom.

The sector-wise proportion of stocks with upsides based on consensus price target along with avg. upside

The brokerage firm is bullish on HDFC Ltd, SBI, Axis Bank, ONGC, NTPC, Hindalco, Coal India, GAIL India, JSPL, JK Cement, Tata Motors, M&M, Zomato, Infoedge, Sun Pharma, Hindustan Aeronautics, Tata Comm., Phoenix Mills, CESC with target price upsides of more than 15%.

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