Nifty 50 hit a milestone of 20,000 as the benchmark index scaled fresh record, with foreign investors continuing to bet on the world's fastest growing economy.
The index has jumped nearly 10.44% so far this year and has doubled since the pandemic lows, when it fell to about 10,000 levels. Nifty 50 took 52 sessions to edge past its last peak. And analysts expect the rally to continue.
"Nifty at 20,000 is part of a journey and not a destination. Sitaron se aage jahan aur bhi hai. Where yesterday's Sensex was, today's Nifty is. Where today's Sensex is, tomorrow's Nifty will be there for long-term investors," said Nilesh Shah, managing director, Kotak Mahindra Asset Management Co.
The rally in Indian shares has increased the already high valuations even further, with market veterans expecting a short-term pullback. "However, in a momentum market, one has to be cautious," Shah said.
Analysts still expect that a group of stocks led by UPL Ltd. and HDFC Bank Ltd. within the Nifty 50 will rise even more, according to estimates compiled by Bloomberg. Others on the list are the State Bank of India, ICICI Bank Ltd., and Kotak Mahindra Bank Ltd.
Tech Mahindra Ltd. and Wipro Ltd. lead Nifty 50 companies expected to fall the most in the next 12 months. Divi's Laboratories Ltd., JSW Steel Ltd., and Coal India Ltd. complete the list of stocks with the worst downside expected.
To be sure, analysts keep updating their forecasts based on company performance and may change their estimates as the new earnings season begins.
Selection Criteria
Nifty 50 stocks
Highest and lowest return potential, based on the average of the 12-month target price.
Nifty 50 Companies With Best Return Potential
1. UPL
UPL Ltd. has the highest return potential of 27.56% among the Nifty 50 constituents.
Out of 29 analysts tracking the company, 21 maintain a 'buy', six recommend 'hold' and two suggest to 'sell' the stock.
CLSA's Kunal Lakhan maintains one of the highest price targets of Rs 1,000 per share, followed by Nuvama Institutional Equities' Rohan Gupta at Rs 886 apiece and JM Financial Ltd.'s Krishnan Paarwani at Rs 880 per share.
Motilal Oswal Financial Services Ltd. reiterated a 'neutral' rating after the weak June quarter result, at the target price of Rs 670 apiece. It reported weak Q1 FY24 performance, with a 17% year-on-year decline in revenue. This was primarily attributed to a decrease in agrochemical prices and lower volumes due to higher inventory across channels.
ICICI Securities Ltd. maintains an "add" with a target of Rs 673 apiece, regardless of an "unfavourable supply and demand situation," led by a strong revival in supplies of agrochemicals from China.
2. HDFC Bank
HDFC Bank Ltd. has the second highest return potential of 25.18% among the Nifty 50 constituents, following its merger with HDFC Ltd.
Of the 46 analysts tracking the company, 45 maintain 'buy,' and one recommends to 'hold' the stock.
Morgan Stanley expects an acceleration in loan growth with the liquidity coverage ratio at 120% after the merger with the parent. The brokerage maintains an 'overweight' rating with a target price of Rs 2,110 per share.
BNP Paribas' Santanu Chakrabarti maintains the highest target price of Rs 2,260 apiece among the analysts tracked by Bloomberg.
Further moderation in credit costs is expected as the share of low-risk mortgages is likely to rise to around 35% at the merged entity, as compared to 7% at the standalone bank, according to ICICI Securities. The brokerage maintains Rs 2,000 apiece as its target price with a 'buy' rating on the stock.
Nirmal Bang Securities Pvt. maintains 'buy' with Rs 2,140 per share as its target price, citing a healthy net interest margin and lower credit costs that will aid the lender's profitability.
3. State Bank of India
The State Bank of India's return potential stands at 23.54% among the Nifty 50 constituents.
Of the 50 analysts tracking the company, 47 maintain 'buy', two suggest 'hold,' and one recommends to 'sell' the stock.
Fitch Ratings Inc. affirmed State Bank of India's long-term issuer default rating at 'BBB-', with a 'stable' outlook, which is also similar to India's sovereign rating.
The bank is confident of clocking a healthy double-digit growth rate in line with system credit growth for FY24, says Nirmal Bang, maintaining a 'buy' rating with a price target of Rs 698 per share.
Loan growth guidance for the current fiscal has been tempered down to 12–14%, and retail loans would drive accretion, according to Prabhudas Lilladher Financial Services Pvt. The brokerage has a price target of Rs 770 apiece, along with a 'buy' rating on the stock.
ICICI Securities estimates strong returns on assets and equity at 0.9% and 16.5%, respectively, for the current fiscal. It expects a marginal downtick in net interest margin, which will be broadly offset by better treasury gains. The brokerage has a 'buy' on the stock, with a target price of Rs 730 per share.
4. ICICI Bank
ICICI Bank Ltd. has the fourth highest return potential of 21.44% among the Nifty 50 constituents.
Out of 49 analysts tracking the company, 45 maintain 'buy' and four recommend to 'hold' the stock.
Morgan Stanley maintains an 'overweight' rating with the highest target price of Rs 1,350 per share, citing that loan growth remains strong despite increased competitive pressure. The management also reiterated guidance to maintain margins similar to FY23 margins, which were at 4.9% in Q4 FY23.
Motilal Oswal retains ‘buy’ with a target price of Rs 1,150 apiece, observing that the bank is well-positioned to deliver steady earnings, supported by pristine asset quality and strong momentum in business growth.
Investec Securities, with a target price of Rs 1,132 per share and a 'buy' rating, says that cost of funds repricing may continue for two more quarters due to the relatively higher maturity of term deposits.
5. Kotak Mahindra Bank
Kotak Mahindra Bank Ltd. has a return potential of 20.79% among the Nifty 50 constituents.
Of the 42 analysts tracking the company, 23 maintain 'buy', 15 recommend to 'hold,' and four suggest to 'sell' the stock.
Company's Founder and Chief Executive Officer Uday Kotak, announced his resignation on Sept 2.
This followed a revision in the target price of ICICI Securities from Rs 2,000 per share to Rs 1,850 apiece, as the brokerage said there is upside risk in growth exceeding expectations and downside risk in a less than smooth management transition.
Morgan Stanley maintains ‘equal-weight’ with a revised target price of Rs 2,250 per share, on the back of strong trends across banking, NBFC, and capital market businesses.
Higher returns on assets of 2.8% in Q1 FY24 was mainly due to one-time non-interest income and it is expected to moderate in the next quarter, said Motilal Oswal. The brokerage maintains a 'neutral' rating with a price target of Rs 2,170 per share.
Nifty Stocks With Worst Return Potential
1. Tech Mahindra
Tech Mahindra Ltd. has the lowest return potential of negative 13.22% among the Nifty 50 constituents.
Out of 43 analysts tracking the company, 14 maintain 'buy', 13 recommend a 'hold,' and 16 suggest to 'sell' the stock.
Citi and IIFL Institutional Equities have the lowest price targets of Rs 900 apiece, maintaining 'sell' and 'reduce' rating, respectively.
Nomura maintains 'buy' rating with a target price raised to Rs 1,316 apiece, as it expects the second half of FY24 to see better growth as recovery in the telecom vertical will be gradual.
Morgan Stanley retains an 'equal weight' rating, with the hope of a margin turnaround, especially with new management.
The decline in overall headcount for the third straight quarter does not provide comfort in terms of revenue visibility, says Jefferies. It has an 'underperform' rating, with Rs 900 apiece as the target price.
2. Wipro
Wipro Ltd. has the second lowest return potential at negative 10.68% among the Nifty 50 constituents.
Of the 46 analysts tracking the company, 11 maintain 'buy', 17 recommend a 'hold,' and 18 suggest to 'sell' the stock.
Despite healthy deal wins, the softness is expected to continue in the September quarter, as the company has guided for revenue performance of -2% to +1% in constant currency terms, as per Motilal Oswal. The brokerage maintains a 'neutral' rating with a price target of Rs 380 per share.
From a long-term perspective, Axis Securities Ltd. says that Wipro has a strong deal pipeline and superior financial structure. However, it lags in execution capabilities to capitalise on growth as compared to peers. It maintains a 'hold' with Rs 400 apiece as the target price.
Lack of discretionary short-term deals and weakness in banking, financial services, insurance, technology, and telecom seem to be the key problem areas, according to Nirmal Bang.
3. Divi's Laboratories
The consensus of return potential for Divi's Laboratories Ltd. points to a downside of 10.30% among the Nifty 50 constituents.
Of the 26 analysts tracking the company, six maintain 'buy', six recommend 'hold,' and 12 suggest to 'sell' the stock.
The current price is discounting business risk and banking on perfect execution and full benefits from future growth drivers, as per HSBC Global Research. It retains a 'reduce' rating with a price target of Rs 2,890 per share.
Motilal Oswal has a 'neutral' rating on Divi's Laboratories, citing that the valuation adequately factors in the earnings upside over the next two years. The brokerage has a target price of Rs 3,430 per share.
The company grappled with high inventory costs and elevated pricing pressure for generic APIs. Even as margins are expected to recover, Kotak Institutional Equities projects a slower margin revival in their estimates. At about 43 times FY24 EPS, valuations remain expensive, according to Kotak Institutional Equities. It maintains a 'sell' rating with Rs 2,615 apiece as the target price.
4. JSW Steel
JSW Steel Ltd. has a negative return potential of 9.55% among the Nifty 50 constituents.
Of the 31 analysts tracking the company, nine maintain 'buy,' eight recommend a 'hold,' and 14 suggest to 'sell' the stock.
Motilal Oswal maintains 'neutral,' with a target price revised to Rs 730 per share, as steel sales were affected by channel destocking in the June quarter. Exports were also hit by delayed loading due to a cyclone in western India.
Morgan Stanley expects the current valuation to be unfavourable at 2.5 times FY24 price to book, which is higher than the long-term average of 1.5 times. It retains an 'underweight' rating with a target price of Rs 580 apiece.
Phillip Capital Inc. maintains 'neutral' with a target price of Rs 765 per share, as a continuous capacity expansion spree may not allow a sharp fall in debt in the near term. The brokerage said that the stock is fairly valued and trading near its long-term mean multiple.
5. Coal India
The consensus on return potential for Coal India Ltd. points to a downside of 7.57% among the Nifty 50 constituents.
Out of 22 analysts tracking the company, 14 maintain 'buy', two recommend a 'hold,' and six suggest to 'sell' the stock.
Systematix Institutional Equities maintains 'sell' with a target price of Rs 157 per share after cutting the operating profit for FY24 and FY25 by 1% to factor in 40% lower YoY e-auction premiums and a likely 6% upward revision in FSA prices.
Going ahead, ICICI Securities expects Coal India to benefit from operating leverage benefits accruing from higher sales volume for both NRS and e-auction customers, despite a lower e-auction premium than in FY23. It maintains 'buy' with an unchanged target price of Rs 285 apiece.
Axis Securities retains a 'buy,' but it reduces Ebitda estimates for FY24 and FY25 by 8% and 3%, respectively, after a fall in the e-auction prices and an increase in employee expenses, partially offset by higher overall sales volumes. Price target of Rs 265 per share.
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