Bernstein retains its earlier target on Nifty for year end after surprise election verdict; key OW on financials

After the surprise general elections 2024 verdict, the BJP retained power but with a narrower majority. Amid this backdrop global brokerage Bernstein has retained its Nifty forecast for the year-end at 23,500, expecting high single-digit return. Importantly as the election results did not aligned with exit polls, Nifty had a worst session in four years tumbling by as much as 6 per cent to 21,884.5 points. This could translate into a potential upside of over 7 per cent from the last close. 

The brokerage noted that before the elections, the ruling government showcased a progrowth, investment-focused manifesto. Even if it is pushed to tweak some of its policies, there is not expected any material risks to the capex cycle. This is as more and more of it shall be driven by the private sector as end markets are changing and the role of the centre shall reduce over time.

While agri-related perennial distress percolates,the global brokerage does not expects any major change in MSP policies by the government, though it can result in short term inflationary impact even as momentous MSP increases are not anticipated. Furthermore, while how the government addresses weak rural market needs will be watched out, in the near term, normal monsoon might do away with the risk for a while. Also, while the BJP government in its third term might resort to increased focus on subsidies in comparison to its previous term, the brokerage does not see any material change in its view on the country's fiscal situation.

So, even as there can be a cut down on capex, the brokerage believes that continuity of power is a powerful enough narrative to support the economy. Furthermore, as the brokerage sees uts previous stance to hold good even after the historical event, it retains its view of high single-digit returns, with the Nifty target pegged for year-end 2024 unchanged at 23,500. 

This is about decent economic growth but a peaking of earnings growth, less room for upward revisions and somewhat rich valuations, added the brokerage.

Brokerage’s stance sectorally

Sectorally, the brokerage is ‘overweight’ primarily on financials, telecom, healthcare, durables and a mild OW on tech. Further, it is ‘underweight’ on consumer Staples, discretionary ex autos, industrials and ‘equalweight’ on Autos, Building Materials, Real Estate, Consumer tech and Utilities. 

Short term outlook on markets 

Besides, the brokerage sees the market sell-down a bit extreme from the very short-term perspective and says this provides room for a modest rebound, with capex-linked stocks leading that. Nevertheless, it sees limited upside as the fundraising calendar will likely commence after the elections.

The capex-heavy names are liked from a cycle perspective, but we are selective when given valuations. We are still constructive on manufacturing, the brokerage adds.

Over largecaps, the brokerage remains ‘underweight’ on SMIDs (small and midcaps).