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Informist, Tuesday, Jan. 14, 2025

 

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--Nomura: See 3-6% risk to Nifty 50 FY26, FY27 earnings estimate 
--Nomura:Co earnings near term unlikely to grow materially above GDP growth 
--Nomura 2025-end Nifty 50 target factors 5% cut to consensus PAT estimate 
--Nomura sets 2025 Dec-end Nifty 50 target based on 18.5x Dec'26 earnings 
--Nomura sets 2025 Dec-end Nifty 50 target at 23784 points 

 

 

MUMBAI – The growth in corporate earnings in India is unlikely to materially outpace the nominal GDP growth in the near term, Nomura Global Markets Research said, as it set the December-end target for the Nifty 50 at 23784 points, signifying just a 2.6% gain potential over the index's closing of 23176.05 on the National Stock Exchange Tuesday. The year-end target of the benchmark index implies a valuation of 18.5 times the estimated earnings for the twelve months to December 2026, the brokerage said in its outlook report. Nomura said it reached the valuation after considering a 5% cut to current consensus earnings estimates. 

 

Macroeconomic uncertainty and the inability of policy measures to drive investment-led growth in India have affected the growth in corporate earnings, Nomura said, adding that it expects the valuations to fall from their current levels. The fair value valuation range is 17-20 times, according to the brokerage firm, which implies a lower rate of return of (-8)% to 9% over 2025.

 

Nomura recommended a bottom-up approach and being highly selective and avoiding expensively-valued stocks. It is overweight on the financials, consumer staples, oil and gas, telecommunication, pharmaceuticals, power, internet, and real estate sectors, whereas it is underweight on the consumer discretionary, automobile, capital goods, cement, hospitals, and metals sectors. The brokerage is neutral on the informational technology services and infrastructure sectors. The valuations are higher than the pre-pandemic levels across most sectors, barring the financial services, oil and gas, and fast-moving consumer goods sectors, the brokerage said. 

 

Nomura said its bottom-up analysis of the companies in the benchmark index suggests a 3-6% risk to the earnings estimates for 2025-26 (Apr-Mar) and FY27. The consensus expectation is that earnings growth for BSE 200 companies will slow down to 4.5% in FY25 from a compounded annual growth rate of 23.5% over FY19-FY24. Earnings growth is expected at 17.4% and 15.3% for FY26 and FY27, respectively, the brokerage said.  

 

The corporate earnings-to-GDP ratio was likely 12.2% in FY24, closer to the peak of 12.7% in FY08, the brokerage said, adding that all macro parameters such as the rise in investments, corporate dividends, and household savings contributed to the rise in earnings-to-GDP ratio over FY18-FY24. The brokerage expects GDP growth for Oct-Dec and 2025 to remain close to 6%. Unlike 2024, the present year has more uncertainty, especially compounded by the change in regime in the US under Donald Trump's presidency, Nomura said. 

 

Slowdown in government spending has adversely affected the growth rate in the recent past. For the central government, the capital expenditure was down 12.3% on year for Apr-Nov and was just 46.2% of the Budget Estimates, Nomura said. The brokerage also said that policy measures such as lower corporate taxes and production linked incentives were taken by the government to boost manufacturing and capital expenditure by the private sector. The capital expenditure by the private sector has picked up pace in the recent past, with contributions from sectors such as energy, power and utilities, automobiles, telecommunication, and metals, Nomura said.

Although the investment-to-GDP ratio has scope to rise as it is low compared to FY18-FY24, weak demand momentum, normalisation in household savings, and global uncertainty will likely impede material revival in corporate capital expenditure in the near-term, Nomura said. New investment-project announcements have slowed in the recent past as the corporate capital expenditure outlook is a function of demand outlook and capacity utilisation, the brokerage said.

 

Nomura said it expects an on-year fall in the earnings for sectors such as banking, non-banking financial companies, automobiles, cement, oil and gas, and capital goods in Oct-Mar. Since the September quarter, consensus estimates have been cut by 2.9%, 2.6%, and 0.9% for FY25, FY26, and FY27, respectively, the brokerage said. 

 

The brokerage said the current consensus estimates face risks as the profit margins across most sectors are already elevated. Banks, which are expected to contribute nearly 20% to incremental earnings over FY25-FY27 will likely record slower credit growth, low net interest margin due to expected cuts in interest rates, and higher than expected credit costs, the brokerage said. 

 

Nomura also said it sees Nifty 50 in the range of 21800-25700 points by the end of 2025. Among the large-cap stocks, State Bank of India, ICICI Bank Ltd., Hindustan Unilever Ltd., Mahindra and Mahindra Ltd., CG Power and Industrial Solutions Ltd., Reliance Industries Ltd., Bharti Airtel Ltd., and JSW Steel Ltd. are Nomura's top picks. The brokerage has a 'buy' rating on all these stocks.  End

 

Reported by Aman Aryan

Edited by Tanima Banerjee

 

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