Domestic brokerage PL Capital has raised its one-year target for the Nifty 50 to 27,019, implying an upside potential of over 12% from Wednesday's closing level of 24,078. While the brokerage remains constructive on India's long-term growth story, it has warned that escalating geopolitical tensions in West Asia and the possibility of a Super El Niño could derail the market's momentum.
In its latest India Strategy report titled "West Asia Crisis, El Niño Can Play A Spoil Sport", PL Capital said Dalal Street has demonstrated resilience despite a turbulent global backdrop, supported by easing crude oil prices, improving domestic demand and attractive valuations.
The brokerage noted that the Nifty has gained about 7.3% over the past two months and nearly 8% from its 52-week low, aided by lower oil prices, a temporary ceasefire in West Asia and robust domestic economic activity. It also highlighted that India's credit growth has accelerated to 17%, reflecting healthy demand across retail, agriculture, services and industrial sectors.
On the back of the improving macroeconomic environment, PL Capital raised its one-year Nifty target from 26,449 to 27,019. The brokerage values the benchmark index at a 10% discount to its 15-year average price-to-earnings multiple of 17.6 times, based on fiscal year 2028 earnings per share of Rs 1,532. Despite the recent rally, it said the Nifty continues to trade at an 11.7% discount to its long-term average valuation.
However, PL Capital cautioned that markets are entering a phase of heightened uncertainty and are likely to remain volatile. The brokerage has trimmed its fiscal year 2027 and fiscal year 2028 Nifty earnings estimates by 0.9% and 0.4%, respectively, citing the possibility of further downgrades if geopolitical tensions intensify or weather-related disruptions hurt consumption and corporate profitability.
The report said corporate earnings in the first quarter of fiscal year 2027 have remained resilient despite global uncertainty. Excluding the oil and gas sector, profit after tax is expected to grow around 14% year-on-year, driven by strong performance from banks, NBFCs, consumer durables, hospitals, metals, renewable energy and engineering services companies. Demand linked to weddings and festivals has remained healthy despite elevated gold prices, while strong summer demand has boosted sales of air conditioners and beverages. Rural demand has also remained stable, although its sustainability will depend on the progress of the monsoon.
PL Capital warned that rising input costs remain a concern across several sectors. Higher food prices, increasing crude oil costs and supply chain disruptions could push inflation higher in the second half of fiscal year 2027. It also highlighted the growing probability of a Super El Niño, which could further aggravate food inflation.
The brokerage said the monsoon remains a key risk. Although the rainfall deficit has narrowed from nearly 40% in June to around 21%, rainfall distribution continues to remain uneven across the country. Kharif sowing is about 21% lower than last year, particularly for oilseeds, pulses and cotton. A prolonged rainfall deficit could hurt agricultural output and keep food inflation elevated.
PL Capital also noted that geopolitical developments will remain a crucial factor for the Indian economy. While easing crude oil prices have provided relief, renewed hostilities in West Asia and the closure of the Strait of Hormuz have already pushed oil prices higher again, raising concerns over inflation and supply chain disruptions. The brokerage warned that higher subsidy spending and weather-related challenges could pressure government finances, although robust GST collections, record RBI dividends and healthy industrial production continue to provide support.
On monetary policy, the brokerage expects domestic liquidity conditions to improve further with the proposed FCNR bond issuance. However, it cautioned that a rise in food and fuel inflation could make an interest rate hiking cycle unavoidable during the second half of fiscal year 2027.
PL Capital remains positive on banks, NBFCs, capital goods, defence, telecom, jewellery, hospitals and consumer durables, citing favourable domestic demand trends, infrastructure spending and strong credit growth. It remains cautious on automobiles, consumer, IT services, cement, chemicals and oil & gas.
Commenting on the outlook, Amnish Aggarwal, Co-Head of Institutional Equities at PL Capital, said India's resilience amid global uncertainty continues to support the market. However, he cautioned that investors should remain alert to risks from geopolitical developments, inflation and El Niño, while adopting a stock-specific investment approach despite the brokerage's constructive long-term view.
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