Zomato, Infosys among Emkay's top picks as it expects continued strength in equities
IndusInd Bank and IT companies such as Infosys. Meanwhile, among the top picks are also Hero MotoCorp, Piramal Enterprises, and Zomato (being a new addition to the list). Going ahead, the brokerage predicts a turning point in the rate cycle, with the Fed's dovish comments indicating three rate cuts in CY24.
The expectation is for the Reserve Bank of India (RBI) to follow suit with concurrent rate cuts, with a more pronounced impact at the short end of the yield curve. Moreover, it expects the real economy to experience limited impact due to low corporate leverage levels. The key beneficiaries, Emkay believes, will be banks with low floating-rate loans, non-housing Non-Banking Financial Companies (NBFCs) with short-end funding, life insurance companies, and the real estate sector.
Emkay further views FPI flows as a key trigger, with India likely to remain one of the most attractive emerging markets, especially considering the challenges of investing in China. The brokerage report also acknowledges historical noise in the initial legs of rate-cut cycles but emphasises the unique characteristics of the current cycle, entering on the back of robust growth. The brokerage believes, while selecting stocks, re-rating is an obvious trigger.
"But it is hard to find candidates if we apply additional filters like earnings visibility, growth sustainability, and relative valuations to history," it pointed out. Beyond the immediate impact of the rate cycle, it prefers small and medium-sized enterprises (SMIDs) and the manufacturing sector. However, it is cautious on consumption, except for autos.
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