Prabhudas Lilladher raises Nifty’s 12-month target to 29,094 on 5 tailwinds. Picks HAL, ICICI and 16 more stocks to buy

Nifty’s 4% rally over the past three months has more scope to grow, says Prabhudas Lilladher (PL), who estimates the heartbeat index to reach its target of 29,094 in the next 12 months, implying 11% growth from current levels. PL has revised its targets upwards from 28,781, believing that economic momentum will pick up from here onwards thanks to income tax cuts, VAT rationalization and better direct tax collection. The brokerage chose the financial sector, consumer sector, defense and ports as key themes to work wonders.Prabhudas remains more bullish on the large caps and picks 11 stocks to buy from this pool. Meanwhile, the mid and small cap segment will accommodate 7 scrips, bringing the total number of preferred picks to 18.

Nifty’s performance in the past three months has been resilient, after a long consolidation since last October. While the December range for Nifty started with strong momentum today and traded with gains of 290 points at 26,175 around 2 pm, the 50-share index still needs to cover 90 points to surpass the September 27, 2024 lifetime high of 26,277.Prabhudas attributes the continued rally to business performance in Q2FY26, hopes of a resolution in the tariff row with the US and rising hopes of revival in domestic demand during the ongoing festival/wedding season, enabled by GST rationalization.

“Operating performance was good with revenue/EBIDTA/PAT growth of 8.1/16.3/16.4% for our coverage universe, with EBIDTA and PAT estimates exceeding 5/7.1% respectively. We saw NIFTY EPS rise for the first time since August 2024,” the broker said in a note.

5 triggers for the next stage of the rally:PL said economic momentum will be led by domestic demand1) Income tax reductions: The government, in its Union Budget 2025, had reduced personal income tax rates to zero for all those earning up to Rs 12.75 lakh per annum, benefiting over 80% of individual taxpayers, besides reducing tax slabs and rates.

2) RBI rate cut: Prabhudas expects a 100 basis point interest rate cut to boost economic growth.

The Monetary Policy Committee (MPC) cut rates by a total of 100 basis points in the first half of 2025, but has maintained a pause since August.

RBI Governor Sanjay Malhotra’s recent statement that there is scope to further cut policy rates has increased expectations.

PL sees banks’ performance improving as net interest margins (NIMs) have bottomed out, credit growth recovering from 9% to likely 11-13% in the second half of the year, and likely reaping gains from the rebound in consumer demand and the peak of MSMEs and MFIs stress.

“We believe the benefits of lower interest rates will be reflected in the repricing of liabilities from Q3FY26 onwards even as low inflation and the current rate cut could see another 25 basis points rate cut in FY26. We are increasing weights on Axis Bank, HDFC and SBI by 30/30/20 basis points,” the PL note said.

3) Normal monsoons

PL said healthy rural incomes from a strong monsoon and a robust kharif/rabi crop are likely to support household expenditure.

4) Low inflation in twelve years

The CPI print for the September quarter was 1.7 and for the three-month period ending in December, PL estimates are at 1%. Benign inflation has resulted in strong growth in real purchasing power, the note said.

5) Rationalization of GST rates

PL said revival in demand has also returned due to GST impact and this is likely to benefit going forward. In addition, the proposed 8th pay commission can be a strong trigger.

Stocks to buy

Among the largecaps, preference is given to Adani Ports & Special Economic Zone (APSEZ), Britannia Industries, Hindustan Aeronautics (HAL), ICICI Bank

ITC, Larsen & Toubro (L&T), Mahindra & Mahindra (M&M), Max Healthcare Institute, State Bank of India (SBI), Tata Steel and Titan Company.

The broader market choices include Ajanta Pharma, DOMS Industries, Fine Organic Industries, EI Industries, Latent View Analytics, Samhi Hotels and Voltamp Transformers.

Warnings

The real estate industry is seeing some cooling in government investments, which have more than tripled since COVID. A 40% increase in the first half of capital expenditure and a high base in the second half of 25 could result in a decline (10% year-on-year decline) in the second half of 2026 unless the Indian government exceeds its capex, Prabhudas believes.

(Disclaimer: The recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times.)