The Indian stock market jumped on Wednesday, with the frontline indices Sensex and Nifty 50 surging over 2% each, following a rally in global markets on hopes of an end to the prolonged US-Iran war in the Middle East.
However, volatility remains high amid continued conflicting signals from US-Iran war and uncertainty over the reopening of the Strait of Hormuz even as some definite signals regarding US’s threshold for war are emerging.
The benchmark has fallen 10% in one month and this sharp correction, analysts believe, has made valuations in the Indian stock market attractive.
At ~17.3x, Nifty trades 7% below its 10-year average of ~18.6x, placing it in a historical “bounce zone”, according to Elara Capital.
Outside of extreme disruptions like COVID-19, this level usually acted as a floor for valuation. Even during the Russia–Ukraine conflict, despite Brent sustaining above $100 per barrel, Nifty 50 multiples bounced back from 10-year rolling averages.
“With our base case assuming gradual de-escalation in the US-Iran war, current valuation provides a favorable entry point, with limited downside,” Elara Capital said in a report.
The brokerage firm has picked 20 value plays which offer a good risk reward opportunity with healthy fundamentals in the current scenario of extreme correction.
Preferred bets: Auto & Power
Auto sector and the Power sector are Elara Capital’s preferred bets amid the present market conditions.
Large-cap auto stocks, like and Eicher Motors, have corrected sharply since the onset of the US-Iran war. While near-term concerns persist, underlying retail data remains robust and encouraging.
Vahan retail registrations so far show strong double-digit growth, with the PV industry up ~38% and the two-wheeler segment up ~30% year-on-year (YoY). This momentum is expected to receive further tailwinds from the Eighth Pay Commission awards, slated for announcement early next year, according to the brokerage firm.
“At current levels, Maruti Suzuki trades at an attractive 19x FY28E P/E, while is at 28x FY28E P/E. We continue to value Maruti Suzuki at 28x FY28E P/E and Eicher Motors at 33x FY28E P/E for its Royal Enfield business and 14x FY28E EV/EBITDA for VECV, underscoring our constructive stance on these quality large-cap auto names despite the geopolitical volatility,” said Elara Capital.
Within the power sector, 18 out of the 19 utility stocks under the brokerage firm’s coverage have outperformed the Nifty 50 in current drawdown, underscoring the sector’s relative resilience.
“The escalating conflict is expected to accelerate India’s electrification cycle, while surging data centre capex is driving incremental power demand. This positive backdrop is further supported by the likely passage of the New Electricity Amendment Bill, which will unlock structural reforms in the sector,” Elara Capital said.
Consequently, power generation, transmission, distribution, and data centre-linked plays are emerging not merely as defensive anchors but as clear structural beneficiaries in the medium to long term, it added
, NLC India, and remain Elara’s highest conviction picks within the space.
Stocks to buy for long-term
Largecap stocks to buy: , , Maruti Suzuki, Axis Bank, , Eternal, Eicher Motors, LTIMindtree, and Polycab India
Midcap stocks to buy: , GMR Airports, UNO Minda, , and Godrej Properties
Smallcap stocks to buy: , Gabriel India, , Ujjivan Small Finance Bank, and Safari Industries
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 making any investment decisions.