Indian equity market investors will have to "brace for volatility" in the new year as corporate profit pain will persist amid high de-rating risks and global uncertainties, according to Nuvama Institutional Equities.
In 2024, the narrative flipped from capex cycle to profit pain, which is likely to persist, analysts at Nuvama said in a note. The brokerage's portfolio prioritises low risk over high returns, having more conviction on underweights rather than overweight picks.
The tailwinds for strong profit growth post Covid have peaked with demand driving earnings in fiscal 2025, Nuvama said. "Outlook for this is bleak as an export recovery is still uncertain." Government spending could provide some near-term spurt, but a sustained bounce needs credit or export recovery. "Hence, earnings cuts are likely."
Foreign flows will move in sync with global risk appetite amid narrowing earnings differential and high valuation premiums, Nuvama said. "Trade wars and the Fed's actions shall be critical" for inflows in 2025, the brokerage said.
Capex-intensive stocks have seen a melt-up in the last two years, not just due to increased government ordering, but surging profitability, Nuvama said. "In 2025, execution rather than government ordering shall be key. Margins could come under pressure if demand does not revive."
HDFC Bank Ltd. Bharti Airtel Ltd. and ICICI Bank Ltd. are the top pics among large-caps for Nuvama.
The brokerage is overweight on private banks, insurance, pharmaceuticals, telecom, cement, consumer, chemicals. Meanwhile, industrials, power, metals, energy, autos, PSU banks and NBFCs are its underweight sectors.
BFSI
Nuvama is bullish on banking, financial services, and insurance companies as it is in a "unique space with probably some of the best-quality franchises— and also the most cyclical ones."
The brokerage is overweight on private banks and insurance and underweight the cyclical ones such as PSU banks and NBFCs. Enhanced focus on profitability and cheap relative valuations could be the key triggers, the note said.
Consumption
The investing landscape in the consumption space has gotten "more challenging," the brokerage said. "Rural recovery is still nascent, but weak incomes and credit slowdown are now hurting urban consumption."
Valuations are not cheap either but the sector is replete with quality franchises and cannot be ignored. Nuvama is overweight on quick service restaurants, apparel retail, consistent compounders, telecom players.
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