Amidst Market Correction, Jefferies Is Bullish On These Stocks Courtesy Valuations, Growth Visibility

The Nifty 50 is down around 13% from its all-time highs in Sept. 2024. The key question now on everyone's mind is what is the road ahead, especially in the near time. According to Jefferies, a short-term bounce back in Indian stocks is likely as the valuation premium has cooled while the market has ignored key positives.

The domestic market correction has brought Nifty valuations close to average on a long-term one-year forward price-to-earnings basis, according to analysts at Jefferies. Compared to emerging markets, the India premium has corrected and it is now much closer to the average, the note said.

Amidst this correction, the stocks have ignored positive triggers such as the central bank's liquidity boosts, the government's spending uptick, and the potential impact of a large income tax cut, the brokerage said.

Analysts at Jefferies believe that the economic activity levels are already picking up and upcoming GDP data will show growth returning to the 6% plus path. "These improving data points, alongside reasonable valuations, are likely to drive a bounce in the market."

Indian stocks remain under pressure, even as two key macroeconomic events — the Union Budget's tax sops and the central bank's rate cuts —failed to lift investor sentiments.

The benchmark NSE Nifty 50 and the BSE Sensex have fallen 13.7% and 12%, respectively, from the previous peak, triggering the worst fall since 2020. India stocks' overall market cap has plunged nearly $1.2 trillion since the peak last year to $3.99 trillion, according to Bloomberg data.

So far in the year, FPIs have sold equities worth Rs 1.01 lakh crore. In January, the FPIs sold equities worth Rs 78,027 crore, according to the National Securities Depository Ltd.'s data.

The slowing pace of earnings growth and some earnings cuts have raised the importance of earnings visibility.

Stocks under their growth screener:

• Electronics & Manufacturing Services – Amber Enterprises India, Syrma SGS Technology.

• Hospitals – Apollo Hospitals Enterprise.

• Automobiles – TVS Motor, Mahindra And Mahindra.

• NBFCs – Home First Finance, Aptus Value Housing Finance, Shriram Finance.

• Others – Indian Hotels, HDFC AMC.

Most of these stocks are in consumer discretionary, which could benefit from potential income tax cuts in FY26. Examples include:

• Consumer Discretionary – Crompton Greaves Consumer Electricals, Whirlpool Of India and V Guard Industries.

• Industrials (following a major sector correction) – Adani Ports, Concor, Samvardhana Motherson.

The selected stocks combine attractive valuations with solid earnings visibility:

• Consumer Discretionary – Voltas, Crompton.

• Hospitals – Apollo Hospitals.

• Others – Adani Ports, HDFC AMC, Shriram Finance, Home First, Aptus, Syrma.