Nifty Poised for New Highs: HDFC Securities Predicts Growth Driven by Key Sectors
HDFC Securities anticipates an improved growth outlook for the Indian market, forecasting a new record high for the Nifty by the end of FY26. this optimism stems from the anticipated recovery in earnings for heavyweight sectors – Banking, Financial Services & Insurance (BFSI), Details technology (IT), and consumer goods – which are believed to have largely bottomed out and should demonstrate advancement starting in the second half of FY26.
The firm projects earnings growth of 11.7% for FY26 and a further acceleration to 16.4% in FY27 for its institutional equities coverage universe.
Sector Preferences for the Next Growth Phase
HDFC Securities identifies several sectors as key drivers of the next market rally. Their preferred sectors include:
Large Banks: Driven by strong domestic fundamentals and anticipated earnings growth. Auto: benefiting from continued strong domestic demand.
Consumer discretionary: Expected to see increased spending as economic conditions improve.
Real Estate: Poised for growth with anticipated outperformance of office space absorption over supply in the next 2-3 years. Cement: Supported by infrastructure advancement and housing demand.
Capital Goods: Benefiting from increased investment in infrastructure and manufacturing.
Conversely, the firm recommends an underweight position in oil & Gas, mid-cap IT, small banks, and metals.
REITs and InvITs: Sustainable Yields in a Declining Rate Environment?
The increasing interest from High Net Worth Individuals (HNIs) in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) is acknowledged. HDFC Securities views both asset classes positively, citing attractive distribution yields – around 6% for REITs and 9-11% for InvITs – which offer downside protection. A further decline in long-term bond yields is also expected to support these investments.
Though, the firm cautions that unit prices for both InvITs and REITs have historically been more volatile than their Net Asset Values (NAV) or cash flow distributions. A contrarian approach is recommended for InvITs – buying when unit prices fall significantly below NAV and booking profits when they rise substantially above it. REIT returns are expected to align with the outlook for commercial real estate, notably the anticipated strong absorption of office space.
Model portfolio Allocation: rs 10 Lakh Investment
For a moderate risk-profile investor, HDFC Securities suggests a portfolio allocation of 50% equities and 45% debt. Given recent rallies and potential near-term volatility, a 5% allocation to gold and silver is recommended, with the potential to increase to 10% over the next 2-3 years.For more aggressive investors, an equity allocation of 65-70% is advised.
Contrarian Bet: Large Caps & Infrastructure/Real Estate
Despite the current investor preference for mid and small-cap stocks,HDFC Securities advocates for a focus on large-cap stocks.They believe this is a contrarian stance,as investors frequently gravitate towards smaller companies.
Specifically, the firm’s analysts remain positive on the infrastructure and real estate sectors, anticipating a potential rebound. Selective investment in high-quality small and mid-cap companies with attractive valuations is also encouraged.