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Index Outlook: Earnings a tad below estimate; current levels offer favourable risk-reward

ICICIdirect Research 21 Feb 2025 DISCLAIMER

As against the expectations of low double digit PAT growth at Nifty level, for Q3FY25, PAT growth at Nifty stood at steady 8% YoY. For manufacturing segment, encouraging thing was operating margins coming in at a six-quarter high at 18.9% (up 100 bps QoQ), primarily driven by benign commodity prices. For the listed universe, PAT growth came in broadly steady at 9% on YoY basis

On the Nifty EPS front, post Q3FY25, incorporating revised PAT estimates for Nifty constituents, we are seeing ~4% earnings downgrade. Key sectors like Capital Goods and Pharma witnessed an upgrade while Metals & Mining and FMCG space witnessed a downgrade.

Keeping the PE multiple intact, our index target gets revised to 27,000 levels i.e. ~21x PE on FY27E EPS of ₹ 1,300. Corresponding Sensex target is pegged at ~90,000 levels, offering healthy high teens upside potential over next 12 months.

With election led uncertainty behind us and growth-oriented Union Budget we expect corporate earnings to resort to double digit earnings trajectory starting FY26E.

With Nifty down ~12% from life time highs and mid & small caps down ~15-20%, we believe valuations have become more reasonable and present market provides extremely lucrative opportunities for long term wealth generation. Encouragingly, global and domestic interest rate cycle has started its downward trajectory & should support equity valuations going forward. 
We believe any dips should be used to build a long-term portfolio of quality stocks

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