Prolonged geopolitical uncertainty can add to sharp swings, but markets are unlikely to breach recent lows, Prabhudas Lilladher said, even as it trimmed its 12-month Nifty target to 26,449 from 27,080 earlier. The brokerage expects the West Asia conflict, crude spikes and supply-chain disruptions to test consumption and fiscal math from 2Q27, but sees selective themes like Private Banks, Defence, Renewables and Semiconductors outperforming.
"We believe that the full impact of higher daily essentials, EL Nino, rising inflation has the potential to curtail consumption demand from 2Q27," Prabhudas Lilladher said in its report on Friday. The firm flagged a potential Rs4-5 trillion incremental fiscal burden from higher subsidies for fertilizers, food and fuel, plus loss of excise on petroleum products. "We don't rule out the possibility of repo rate hike from 2H27," it added, citing inflation pressures.
Nifty has already priced in part of the stress, falling 7.2 per cent over the past two months and 15.4 per cent from 52-week highs as crude prices spiked and global supply chains frayed. The brokerage cut FY27/28 Nifty EPS by 0.9 per cent/0.8 per cent to Rs1,344/Rs1,538, implying 15.9 per cent CAGR over FY26-28. That puts its estimates 2.5 per cent/3.4 per cent below consensus. Despite the cuts, valuation cushion exists: Nifty trades at 16.5x one-year forward EPS, a 13.6 per cent discount to the 15-year average of 19.1x and 18.7 per cent below the 10-year average of 20.3x. Prabhudas Lilladher valued the index at a 10 per cent discount to the 15-year average PE of 17.2x to arrive at the 26,449 target.
The external account remains a watchpoint. "Balance of trade including services remain comfortable, however sustained FII selling, pressure on remittances and crude spikes are placing the currency under stress," the brokerage said. Remittances at USD120bn annually, with USD40bn from the Middle East, are vulnerable if geopolitical risks persist.
On sector strategy, Prabhudas Lilladher said India's dependence on imported crude, fertilizers, rare earths, semiconductors and critical technologies has exposed fissures despite resilient growth. It advised investors to play domestic capex and import-substitution themes. "We believe Private Banks, NBFC, Metals, Capital Goods, Defence, Data Centers, Renewables, Railways, Ports, Ship Building, Semiconductors and Healthcare are themes to play," it said.
The brokerage remained cautious on IT Services, Consumer, Chemicals, Agri and Oil and Gas, expecting higher input costs and demand pressure to weigh on margins. (ANI)
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