It projects a potential upside scenario if valuations revert to the long-term average of 18.9x P/E, applied to its FY27 EPS estimate of Rs 1,460.
This bullish case marks an upward revision from PL Capital’s earlier projection of 27,041, driven by the expectation of sectoral resilience, continued policy support, and earnings visibility across domestic-facing businesses.
Leading domestic brokerage firm Prabhudas Lilladher Capital (PL Capital) has revised its 12-month base case target for the Nifty to 25,521, down from 25,689 earlier, citing a cocktail of global and domestic macroeconomic challenges ranging from a prolonged U.S.-China tariff war to weakening domestic demand and earnings downgrades.
The brokerage now values the Nifty at a 7.5% discount to its 15-year average price-to-earnings (P/E) ratio of 18.9x, assigning it a multiple of 17.5x based on its March 2027 EPS estimate of Rs 1,460. This new valuation reflects a cautious recalibration amid increasing signs of stress in global trade and macro stability.
Beyond the base case, PL Capital also outlined alternative market outcomes:
- Base Case: Assuming a 7.5% discount to the 15-year average P/E of 18.9x, PL Capital values the Nifty at 17.5x with a March 2027 EPS estimate of Rs 1,460, leading to a 12-month target of 25,521 (revised from 25,689 earlier).
- Bear Case: A 10% discount to long-term average valuations implies a potential downside target of 24,831 (from 24,337 earlier).
According to PL Capital, the escalating geopolitical tariff war between the United States and China has become a central risk for global markets. The U.S., in a bid to revive its struggling manufacturing sector, has resorted to reciprocal tariffs. However, PL Capital notes that this strategy is taking place against the backdrop of a $1.2 trillion U.S. fiscal deficit, a massive $36 trillion national debt, and a widening trade imbalance.
Simultaneously, China’s growing technological dominance, evident in breakthroughs such as Deepseek AI and the global expansion of its Digital Renminbi, combined with its strategic partnerships via the Belt and Road Initiative (BRI), has begun to undercut U.S. economic influence on the global stage. As a result, PL Capital sees the current tariff standoff as a strategic standoff unlikely to de-escalate quickly.
This prolonged tension is expected to dent global supply chains, disrupt capital flows, and weigh on trade-linked sectors well into the first half of FY26. The brokerage estimates that global GDP growth could be shaved off by 0.5% due to this confrontation, increasing currency and commodity volatility and weakening export-linked sectors like Indian IT.
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On the domestic front, Indian markets have seen a 3.8% YTD decline, as macroeconomic uncertainty weighs heavily on sentiment. FII selling, combined with weaker-than-expected domestic demand and a spate of earnings downgrades, has added to the gloom. PL Capital highlights that Nifty EPS estimates for FY26 and FY27 have been cut by 6.2% and 5.6%, respectively, since October 2024.
While inflation has cooled- thanks to a normal monsoon and a sharp drop in food prices, consumer sentiment remains tepid. Despite 50 basis points of repo rate cuts delivered in two tranches and the announcement of Rs 1,000 billion in tax relief, private consumption has yet to pick up meaningfully.
In response to these subdued indicators, the RBI has lowered its FY26 GDP growth estimate by 20 basis points, reinforcing a cautious outlook for the year ahead.
On the sectoral front, analysts at PL Capital estimate a 5% growth in overall sales for their coverage universe, but a slight 0.5% decline in EBITDA and a 2.2% drop in Profit Before Tax (PBT) highlight margin pressures and weakening profitability.
Excluding Oil & Gas, however, EBITDA and PBT are expected to grow by 4.3% and 5.5%, respectively—indicating stronger performance in the rest of the market.
Telecom, AMC, Travel, EMS, Metals, Hospitals, Pharma, and Durables are expected to lead in profit growth, while Banks, Building Materials, Logistics, and Oil & Gas are likely to report PBT declines.
Meanwhile, IT, Consumer, Cement, and Capital Goods sectors are expected to show only modest, single-digit PBT growth, reflecting caution amid mixed demand and global uncertainties.
With this, PL Capital has highlighted xx stocks within the small, mid and largecap space as their top conviction picks:
Largecap stocks: ABB India, Bharti Airtel, Bharat Electronics, Britannia Industries, Cipla, ICICI Bank, InterGlobe Aviation, ITC, Kotak Mahindra Bank, Mahindra & Mahindra, Maruti Suzuki, Titan Company
Small and midcap stocks: Aster DM Healthcare, Astral Ltd., Chalet Hotels, Crompton Greaves Consumer Electricals, Eris Lifesciences, Ingersoll-Rand (India), Indian Railway Catering and Tourism Corporation, Kaynes Technology India, KEI Industries, Max Healthcare Institute, Triveni Turbine
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
