Top Indian stocks, sectors to bet on, as per BNP Paribas

Market


Defying global trends, Nifty 50 has outperformed most peers in year-to-date (YTD) terms peers on the back of strong domestic flows — both direct retail and indirect (MFs). There are some signs of slowing inflows from retail investors. Retail flows turned negative in July 2022 after 10 months of consecutive inflows, SIP inflows have moderated as well after reaching a record high of 123 billion in March 2022. 

Nifty is trading at 19.2x NTM PE, c21% above its long-term average, taking the earnings yield-bond yield gap below -2%, highlighted BNP Paribas in a note on India strategy.

Amid slowing global demand, lofty market valuations, a slowdown in retail flows and lack of positive catalyst for our earnings estimates, the brokerage remains cautious on the overall market returns in the near term. 

It remains selective with overweight (OW) rating on the banking sector, given that it is trading below its 10-year mean NTM PE, with improving credit growth and stronger and cleaner balance sheets. 

“We tilt toward defensive positioning with OW on IT and pharma instead of auto (underweight or UW), consumer staples (UW) and consumer durables (UW), where the valuation comfort after the recent run-up is low,” it added.

BNP Paribas is also UW on global cyclicals (energy and materials). While the domestic staples and durables outlook has improved due to moderation in commodity costs, these sectors are trading at a steep premium to their history and it would wait for better entry points.

Nifty’s rally continued in August, fuelled by expectations of peaking inflation and thus a lower tightening stance by central banks, though markets turned volatile toward the latter half after Fed Chair Jerome Powell’s Jackson Hole speech, in which he ’emphasised restoring price stability, maintaining a restrictive policy stance for some time’. 

Its top stock picks are Axis Bank with target price of 1,130, HDFC Bank (TP: 2,030), Infosys (TP: 1,665), Bharti Airtel (TP: 885), Sun Pharma (TP: 1,074), ITC (TP: 360) and Whirlpool of India (TP: 2,260).

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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