Domestic brokerage PL Capital has raised its 12-month Nifty target to 27,123 from 27,019 earlier, while cautioning that El Niño, inflation and commodity risks could limit a broad-based market rally.
The brokerage remains constructive on the medium-term outlook, supported by resilient domestic demand, strong credit growth and improving liquidity, but expects near-term market volatility to remain elevated.
PL Capital’s bull-case target stands at 30,137, while its bear-case target is 24,971. The brokerage said the Nifty is currently trading at 17.3x one-year forward EPS, an 11.7 per cent discount to its 15-year average P/E of 19.6x.
The brokerage values the index at a 10 per cent discount to its 15-year average P/E, based on FY28 EPS of ₹1,537.6.
Earnings, monsoon risks
According to PL Capital, corporate earnings remained strong in Q1FY27, with its coverage universe excluding Oil & Gas reporting 15.5 per cent sales growth and 17 per cent PAT growth. EBITDA growth stood at 9.6 per cent, while EBITDA margins declined by 148 basis points.
PL Capital said higher commodity costs and supply-chain disruptions are beginning to emerge in margins, with the full impact of higher-cost inventory expected to become more visible from Q2FY27.
The brokerage highlighted El Niño and the deteriorating monsoon situation as key risks to inflation and demand. India’s cumulative monsoon deficit has widened to around 14 per cent, with 17-18 of 36 meteorological subdivisions reporting deficient rainfall.
PL Capital said a stronger El Niño could push up prices of agricultural commodities such as coffee, cocoa, palm oil and soybean, putting pressure on food inflation and consumption demand.
Sector preferences
The brokerage remains overweight on Banks, Capital Goods, Diversified Financials, Metals, Healthcare, Telecom and Ports, while remaining underweight on Automobiles, Consumer and IT Services. It is increasing exposure to Metals, Capital Goods/Defence, NBFCs, Asset Management Companies, Telecom and Ports.
PL Capital sees risks to the RBI’s inflation trajectory and said there is a strong possibility of a 25 basis points rate hike towards the end of Q3/Q4FY27, with the possibility of a 50 basis points increase depending on crude prices and geopolitical conditions.
The brokerage also highlighted credit growth as a key support for the economy, with credit growth rising to 18.6 per cent in June. FCNR mobilisation is expected to provide an additional $70-80 billion of credit availability.
On earnings, PL Capital said the 17.7 per cent Nifty EPS growth projected for FY27 is at risk from higher raw-material costs, deficient monsoons, successive price increases in essential goods and elevated crude and commodity prices.
Amnish Aggarwal, Co-Head – Institutional Equities, PL Capital, said Indian equities have shown resilience despite a challenging external environment, but deficient monsoons, El Niño, commodity inflation and potential margin pressures could weigh on consumption and earnings. He said near-term volatility is likely to remain elevated and investors should adopt a selective, stock-specific approach.