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Jefferies Joins 'Buy The Dips' Calls For 2023; Lists Top Picks

The RBI rate hike risk is priced in, and the December 2023 Nifty 50 target of 19,000 offers "only a limited upside."

<div class="paragraphs"><p>Stock movement. (Source:&nbsp;<strong><a href="https://pxhere.com/en/photo/911746">PxHere</a>)</strong></p></div>
Stock movement. (Source: PxHere)

Despite the "robust" outlook for the Indian economy, Jefferies expects limited upside for the local equity market in 2023 due to its high valuation.

India's GDP is likely to grow at over 6% in fiscal 2024, driven by a housing cycle upturn and improving corporate spending, Jefferies said in a Dec. 30 note.

"India's growth should stay resilient despite rate hikes," Jefferies said, calling for 'buy the dips.'

"Like the global trend, the Indian rate cycle looks close to peaking, and we believe the peak maybe 25–50 basis points (currently 6.25%) away," it said.

"We do not expect the developed world phenomenon of rising rates impacting growth through a slowdown in housing and corporate spending to happen in India," the brokerage said. This is because the rate hike risk is priced in, and the December 2023 Nifty 50 target of 19,000 offers "only a limited upside due to valuation."

"Potential corrections should be buying opportunities," Jefferies said. "We like banks, staples, property, industrials, and select autos; we are underweight on IT and telecoms," it said.

According to the brokerage, foreign fund inflows will help support the indices.

"Rate hikes peaking out in the U.S. imply that U.S. dollar strength is close to peaking out. That, coupled with China's reopening, should drive more flows toward emerging markets," Jefferies said. "While India may end up underperforming on an absolute basis, foreign flows should not be a big negative."

"Domestic flows have slowed down, but an annualised inflow of around $25 billion appears sustainable," it said.

Ebitda margins of Indian corporates are likely to rise across listed firms, aiding earnings growth in 2023, Jefferies said.

"The overall Nifty earnings growth slowdown to 10% in FY23 hides the stronger domestic earnings," Jefferies said. They expect it to grow by around 25%. Domestic earnings are expected to post another 15%, even assuming earnings cuts, the brokerage said. "Thirty-nine out of 65 domestic companies are expected to see their margins weaken in FY23."

However, in the next fiscal, Jefferies expects 58 of 65 firms to show improvement in margins. "Key sectors with margin improvement are expected to be autos, cement, staples, and industrials."

Jefferies remains positive on the domestic economy and capex plays. "Key picks are large banks (ICICI Bank, SBI), developers (Godrej Properties, DLF), autos (Maruti Suzuki, Tata Motors, TVS), staples (Hindustan Unilever, Godrej Consumer, Britannia), Tata Steel, and select capital goods like L&T and Concor."

The brokerage, however, remains underweight on IT services, telecom, and healthcare stocks while betting on mid-cap picks such as Thermax, Supreme Industries, CMS Info Systems, Aavas, Prestige Estates, Embassy, Kajaria, Dalmia Bharat, Syngene, and Indian Hotels.

Jefferies' call to 'buy on dips' isn't new for those tracking Indian markets in 2023. Earlier, Kotak Institutional Equities and Axis Securities suggested the same.

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