InCred slashes Nifty 50 target amid macro challenges, prefers large-cap stocks; Adani Ports, Bajaj Auto among top picks

Brokerage house InCred Equities has revised its target for the Nifty50 index, citing short-term macroeconomic challenges both locally and globally.

The brokerage has reduced its FY26F bull-case probability to 5 per cent from 10 per cent and raised the bear-case probability to 45 per cent from 40 per cent.

Factoring in Bloomberg consensus EPS cuts for Nifty50, InCred has marginally lowered its blended Nifty50 target to 22,850 by March 2026F, implying a 2 per cent upside from current levels. In a bear-case scenario, the firm maintains an 8 per cent downside projection.

Given market conditions, InCred continues to favour large-cap stocks and has introduced Adani Ports and Special Economic Zone, Bajaj Auto, Marico, and Shriram Finance to its high-conviction list, alongside Ethos in the mid-cap space.

Other stocks already on the list include Bajaj Finance, Bharat Forge, Cipla, CONCOR, HDFC Bank, Hero Moto, Maruti Suzuki, IndiGo, Lupin, and SBI Cards among others.

Large-cap stocks to be in vogue ahead

InCred pointed out that the continued correction since mid-September 2024 has brought Nifty50 valuations below the 10-year mean level of 20x one-year forward price-to-earnings (P/E), approaching the -1 standard deviation mark. A significant improvement in real earnings yields into positive territory for the first time since the COVID-19 pandemic is also expected to limit further downside risks.

However, it cautioned that the recent acceleration in consensus EPS cuts raises doubts about early-teen growth projections for FY26F-FY27F. As a result, InCred favours value-based themes in the market, with a preference for high-dividend-yield stocks.

Government policies to aid economic recovery

InCred noted that high-frequency data continues to indicate a slowdown in urban demand, as reflected in a sharp year-on-year decline in new home sales during the December 2024 quarter. However, the recent Union Budget announcement, which included a ₹1 trillion personal income tax cut for FY26F, offers a potential catalyst for urban consumption recovery. Additionally, easing inflation provides room for the Reserve Bank of India (RBI) to extend its repo rate cuts in FY26F, which could further aid consumption revival.

Consensus EPS cuts to bottom out by H1FY26

According to InCred, Nifty50 companies recorded a 7.5 per cent year-on-year (YoY) and 5 per cent quarter-on-quarter (QoQ) growth in profit after tax (PAT) for the December 2024 quarter, driven by a 7 per cent YoY increase in sales. The EBITDA growth, excluding the BFSI sector, stood at 7.9 per cent YoY, supported by the retail, telecom, healthcare, oil & gas, and capital goods sectors. However, EBITDA continued to decline YoY in the cement, chemicals, and metals sectors.

The brokerage highlighted that Bloomberg EPS estimates for FY25F-26F saw a 2-3 per cent downgrade during the latest earnings season, with the broader Nifty-200 index being the most affected. Among sectors, only consumer discretionary witnessed EPS upgrades, while all others saw cuts. InCred expects EPS downgrades to stabilize around the September 2025F quarter.

Overall, while macroeconomic headwinds persist, InCred remains cautiously optimistic about select investment opportunities, particularly in large-cap stocks. The firm believes that valuation support, government policies, and a potential bottoming out of earnings downgrades in the first half of FY26F could provide stability to the market. However, risks such as currency fluctuations driven by international policy actions and monsoon uncertainties remain key factors to watch in the coming months.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.