Nifty outlook: Prabhudas Lilladher cuts index target to 20,735, expects consolidation ahead of 2024 elections

livemint.com:

Prabhudas Lilladher has trimmed its 12-month Nifty target to 20,735 from 21,430 valuing the index at a 12 per cent discount to 10-year average PE (price to earnings ratio) of 20.7 times, and said that the coming months will be a real test for the economy and markets due to the EL Nino impact on inflation as food inflation and a feeble possibility of interest rate cut. The brokerage firm has trimmed the Nifty target primarily because of a cut in earnings and expects markets to consolidate ahead of the 2024 elections.

"For the base case, we value Nifty at a 12 per cent discount to the 10-year average PE (20.7 times) with March 2025 EPS (earnings per share) of ₹1,138 and arrive at a 12-month target of 20,735 (21,430 based on 18.3 times March 25 EPS of ₹1,171 earlier)," said Prabhudas Lilladher. "For the bull case, we value Nifty at a 10-year average (20.7 times) and arrive at a bull case target of 23,563 (24,353 at LPA PE).

Bear case Nifty can trade at a 25 per cent discount to LPA (25 per cent earlier) with a target of 17,672 (18,264 earlier)," said the brokerage firm. Prabhudas Lilladher pointed out that while India seems well poised for growth in the longer term, the coming months may be a "real test for the economy and markets given (1) EL Nino impact on crops and Inflation as food inflation has spiked to more than 7.4 per cent and rainfall outlook remains subdued, and (2) dim possibility of further cut in interest rates with some possibility of an increase in the second half of the financial year." The brokerage firm expects the markets to start factoring in political risks as election-related activity picks -up with state elections in November and Lok Sabha elections in April 2024.