Axis Securities Sees India's Growth Momentum Continuing, HDFC, Airtel Among Top Picks

The Indian economy continues to be a "star-performer" compared to other emerging markets, Axis Securities said in its note on Friday.

What Happened: The brokerage laid down its sectoral outlook and macroeconomic estimates for the whole year. It underscored the strong start to the year with Nifty reaching an all-time high of 24,951 points on July 31 on the back of a post-budget rally, increased capex, confidence in policy stability, rising domestic inflows, attractive valuations after recent corrections and in-line Q1FY25 earnings.

The economy is likely to continue its growth momentum in 2024 and remain a bastion of stability amid a turbulent global economy.

The key factors to keep an eye out for include the U.S. Federal Reserve's rate cut announcement, which is expected around September, the progression of the monsoon, the ongoing earnings season, U.S. bond yields, oil prices, investment flows and the upcoming U.S. election in November 2024, the brokerage noted. These events are expected to keep the Indian equity market volatile, it added.

HDFC Bank, ICICI Bank, Nestle India, State Bank of India, Varun Beverages and Bharati Airtel were some of Axis' top picks.

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Sectoral Outlook: The brokerage outlined its detailed guidance for different sectors, providing comprehensive insights and forecasts across various industries.

Automobiles: The Indian automobile sector is seeing broad-based demand improvements, with stable or improving EBITDA margins expected, according to the brokerage, driven by a richer product mix, higher realisations, lower raw material costs and positive operating leverage.

Axis maintains a positive outlook and maintains an “overweight” stance on the sector, as demand drivers remain strong.

BFSI: FY23 was strong for the banking, financial services and insurance sector, with banks and non-banking financial companies positioned to leverage growth opportunities.

Deposit mobilisation is crucial for sustaining credit growth, the brokerage said. It expects the return of assets (RoAs) for banks to plateau or slightly moderate. Given the sector’s attractive valuations, it maintains an “overweight” stance.

Fast-Moving Consumer Goods (FMCG): Staple companies have shown modest revenue growth due to increased competition and past price hikes, Axis said.

It expects demand to recover in the coming quarters. While gross margins are improving, EBITDA margins may face short-term pressure from higher advertising spend but could benefit the sector long-term. Axis continued with its “equal-weight” stance on the FMCG sector.

Information Technology: Axis expects Indian IT services to encounter short-term challenges due to economic slowdown and uncertainties, impacting demand and margins. However, the long-term outlook remains strong, with a recovery expected in the second half of the year and robust revenue growth in FY25. It maintained an “equal-weight” stance on the sector.

Oil and Gas: Oil Marketing Companies (OMC) have faced uncertain profitability due to inflexible retail fuel prices and volatile crude prices. Given that inflation control is a government priority and auto-fuel prices are unlikely to rise soon, Axis therefore does not expect an immediate recovery in marketing margins and maintains an “equal-weight” call on the sector.

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