Indian equities could face further downside before entering a consolidation phase, amid rising inflation risks, geopolitical uncertainty, elevated commodity prices and volatile foreign investor flows, according to a report by PL Capital. The brokerage has revised its 12-month Nifty 50 target to 27,589 from 27,133 earlier, while cautioning that attractive valuations alone may not trigger an immediate recovery.
The Nifty 50 has declined 8.2% over the past six weeks and 6% year-to-date, making India one of the weakest-performing major markets. Persistent foreign institutional investor (FII) selling, concerns over deficient monsoon rainfall, rising crude oil and agricultural commodity prices, higher bond yields, and the escalating Iran-US conflict have weighed on sentiment.
PL Capital’s high-conviction stock picks offer potential upside of up to 52.8% based on target prices and 9 October closing levels. Among large-cap stocks, GE Vernova T&D India leads with a projected upside of 41.3%, followed by ICICI Bank at 36.5% and Britannia Industries at 36.4%.
In the mid- and small-cap category, CESC tops the list with a potential upside of 52.8%, followed by Amber Enterprises India at 43.3% and Healthcare Global Enterprises at 39.2%.
“We are removing Engineers India and Supreme Industries from conviction picks. We are adding Britannia Industries, Bharat Electronics, GE Vernova T&D India and Mahindra Logistics in conviction picks, ” said PL Capital in its report.
Earnings growth faces margin pressure
For the September quarter of FY27, PL Capital expects sales and EBITDA growth of 16.2% and 14.7%, respectively, on a year-on-year basis, excluding the oil and gas sector. Across its coverage universe, it forecasts sales growth of 24.1%, EBITDA growth of 10.4% and profit before tax growth of 8.6%.
However, rising input costs could weigh on profitability, with 16 of 27 industry segments expected to report lower EBITDA margins. Companies are increasingly feeling the impact of higher-cost inventories purchased when crude oil and other input prices were elevated.
Deficient monsoon, El Niño pose inflation risks
India’s monsoon season ended with a 13% rainfall deficit, with 17 of 36 meteorological subdivisions—covering 42% of the country’s geographical area—recording deficient rainfall. Reservoir levels were also 21% below last year’s, raising concerns about soil moisture and the upcoming Rabi crop season.
The report warned that a potentially strong El Niño could disrupt global agricultural production, affecting commodities such as soybeans, coffee, cocoa and palm oil. Since food accounts for around 40% of India’s inflation basket, higher agricultural prices could sustain inflationary pressures and constrain consumption.
Monetary policy is also becoming less supportive of growth. The Reserve Bank of India (RBI) raised the repo rate by 25 basis points to 5.50% and shifted its stance to “Calibrated Tightening”. It also raised its FY27 inflation forecast to 5.2%, with inflation projected at 6% in Q3 and 5.7% in Q4. Persistent inflation could prompt further rate increases, potentially weighing on consumer spending after the festive season.
Valuations attractive, but recovery may take time
PL Capital’s revised Nifty target is based on September 2028 earnings estimates and a valuation at a 12% discount to the index’s 15-year average price-to-earnings multiple of 19.2 times. The index is currently trading at 15.5 times one-year forward earnings, a 19.3% discount to its long-term average. However, further earnings downgrades and weakening demand could delay a recovery. In its bear-case scenario, the brokerage sees the Nifty falling to 22,044 before stabilising.
The brokerage remains overweight in capital goods, healthcare, banks, metals, financials, telecom, and ports, while underweight in automobiles, IT services, consumer stocks, and oil and gas.
Amnish Aggarwal, Co-Head – Institutional Equities at PL Capital, said markets face a challenging mix of inflation, geopolitical uncertainty and tighter financial conditions. He cautioned against expecting a V-shaped recovery, advising investors to remain selective and focus on fundamentally strong companies and sectors benefiting from domestic investment and structural growth.
All you need to know about high conviction picks
As of Friday’s closing prices on 9 October, PL Capital’s high-conviction stock picks included eight large-cap stocks and eight mid- and small-cap stocks, with projected upside ranging from 13.4% to 52.8%, based on the brokerage’s target prices.
Among large caps, GE Vernova T&D India offered a potential upside of 41.3% from its closing price of ₹4,194 to the target price of ₹5,928. Britannia Industries had an upside potential of 36.4%, followed by ICICI Bank at 36.5%, Shriram Finance at 33%, and Bharti Airtel at 31.1%.
In the mid- and small-cap segment, CESC topped the list with a potential upside of 52.8%, from ₹133 to ₹204. Amber Enterprises India followed with an upside potential of 43.3%, while Healthcare Global Enterprises offered 39.2% upside. Aster DM Quality Care and Mahindra Logistics had potential upside of 31.5% and 31.6%, respectively.
These upside estimates are calculated using the closing prices on 9 October and PL Capital’s stated target prices; actual returns may vary with market movements.
Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
