Current market valuations offer limited upside scope, says Neeraj Chadawar of Axis Sec, sets Nifty target at 26,100

Neeraj Chadawar, Head - Fundamental and Quantitative Research at Axis Securities has maintained a base case December 2025 Nifty target of 26,100. Chadawar said most of the events are now behind us, with most of the negatives related to earnings already factored into the price. He noted that in the last 90 days, the market saw the journey from overbought to oversold. However, with current valuations offering limited scope for further expansion, he added an increase in corporate earnings will be the primary driver of the market returns moving forward. He advised that rather than ‘timing’ the market, staying invested for longer ‘time’ is the best strategy for long-term success in the equity market. Edited excerpts:

How should investors position their portfolios this year? What is your Nifty target?

The Indian economy continues to be a ‘star performing’ economy compared to other emerging markets. Moreover, we firmly believe it will likely continue its growth momentum in 2025 and remain the land of stability against the backdrop of a volatile global economy. Political stability after state elections and expected fiscal support are boosting confidence. Overall, the growth prospects are likely to improve in the forthcoming quarters. Hence, bottom-up stock picking with a focus on ‘Growth at a Reasonable Price’ and ‘Quality’ would be keys to generating satisfactory returns in the next one year.

FY26 is expected to be better than FY25, driven by fiscal tailwinds, private capex revival, and easing credit conditions post-CRR cuts. Nifty 50 EPS is projected to grow by 7.6% in FY25, with growth expected to accelerate to 13.7% in FY26 and 11% in FY27, reflecting a robust 14% CAGR over the FY23–27 period. We maintain our Base case Dec’25 Nifty target at 26,100 by valuing it at 20x Dec’26 earnings. The majority of the events are now behind us, with most of the negatives related to earnings already factored into the price.

After hitting multiple peaks earlier in 2024, Nifty was pretty volatile in December; do you believe its current valuations are fair?

After the recent correction, we believe the market is in the oversold zone. The number of stocks trading above the 200-day moving average in the NSE 500 universe hovers around 41% on 31st Dec’24, and the long-term average is 55%. Three months back, this number was hovering around 85-90%, typically indicating the overbought territory of the market. In the last 90 days, the market saw the journey from overbought to oversold. However, with current valuations offering limited scope for further expansion, an increase in corporate earnings will be the primary driver of the market returns moving forward.

Is this the right point of entry for new investors? If not, till when should they wait?

Returns in equity markets are nonlinear, which means in the shorter run, rides are more volatile, while in the longer run the probability of inflation-beating returns is very high. Equity investments can fulfil long-term goals where compounding plays a major role in the long run. Having said that, it is always difficult to predict the short-term direction of the market, meaning ‘timing the market’ is one of the challenging tasks. So rather than ‘timing’ the market, staying invested for longer ‘time’ is the best strategy for long-term success in the equity market.

Which sectors do you anticipate being undervalued or poised for significant growth in 2025?

We present Six Golden Themes for 2025: 1) Structural Play in Premium Consumption, 2) Growth story of the Indian Healthcare Industry, 3) Companies with higher growth potential in the Infrastructure value chain, 4) Pharma and Telecom as a Defensive Play, 5) Real Estate led by Demand Visibility, 6) Reasonable valuation play in BFSI.

What risks do you see in 2024 that may lead to weak performance?

The key risks for 2025 are: Policies in the US government under Trump’s presidency, inflation, volatility in currency and further moderation in the domestic earnings.

Will the mid and small-cap rally continue in the next year?

In 2024, most of the returns were front-loaded, and higher volatility was seen in the second half. However, in 2025, the reverse trend is likely to be observed; the first half of 2025 is expected to be more volatile, and more returns will be backloaded in the year. Keeping this in mind, we see near-term consolidation in the market, with the breadth of the market narrowing further. Hence, our focus would remain on style and sector rotation. The market will continue to award the companies showcasing sustainable business models with superior visibility in earnings growth supported by stronger management. Premium valuations are likely to sustain in those counters showcasing the above strengths.

One piece of advice for new investors.

Focus on asset allocation and a goal-based disciplined approach in investing.

What do you expect from the upcoming Budget?

The upcoming Union Budget is expected to balance infrastructure growth with social welfare. However, the recent development in the Maharashtra elections verdict was not entirely surprising. Still, the scale of domination of the ruling party after a lacklustre performance in the general elections was quite unexpected. The past decade was defined by development-focused schemes, with the construction of roads, bridges, metro systems, and other infrastructure projects as benchmarks for the ruling party's success. However, the capacity creation phase has had challenges that resulted in lower allocation to social schemes. While capacity creation is one of the simplest means to deliver sustainable growth, reducing social schemes has also resulted in rural distress. Thus, social schemes like Ladki Baheen are now likely to become the success mantra in Indian politics.

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