Motilal Oswal, Jeffries, and Goldman Sachs are overweight on the sectors we have talked below.
Motilal Oswal, Jeffries, and Goldman Sachs – This year has been quite favorable for investors, with the top sector performers of 2023 continuing their rally into 2024. The top five sector performers of 2024 were realty, healthcare, pharma, consumer durables, and auto.
Realty, auto, and pharma were the standout performers from 2023. They showed resilience in the face of uncertainty and volatility. This was due to elections in India and the US, escalating geopolitical tensions, and foreign institutional investor outflows. These outflows occurred as a result of interest rate cuts by the US Federal Reserve.
Looking ahead to 2025, analysts have differing opinions on sector performance. Most anticipate market consolidation in the first half because of moderate earnings and high valuations. They expect a recovery in the second half. A market correction presents a buying opportunity for investors to acquire quality stocks at discounted prices.
Analysts have categorized sectors as either ‘overweight’ or ‘underweight’. Profit Pulse has identified sector overlaps by analyzing the 2025 macroeconomic outlook from three brokers—Motilal Oswal, Jeffries, and Goldman Sachs.
Here are some intriguing insights:
All three brokers are bullish on the real estate and information technology (IT) sectors. Real estate has shown consistent growth over the past two years, while the IT sector has experienced a gradual recovery following a period of consolidation.
Real Estate:
In the past two years, India’s real estate sector has been a standout performer. The Nifty Realty index surged 82% in 2023 and 36% in 2024. Some top performers in 2024 are Raymond Ltd, Sobha Ltd, and Oberoi Realty Ltd. They delivered an impressive annual return of over 60%. Analysts anticipate that the demand for realty stocks will continue to rise in 2025.
Macrotech Developers Ltd reported the fastest sales growth of 48% in the last 12 months. This was the highest among the 10 stocks listed on the Nifty Realty index. Both Motilal Oswal and Jefferies have included Macrotech in their stock picks for 2025. Motilal Oswal is particularly optimistic about Macrotech’s presence in the luxury real estate market. They have set a target share price of ₹1,770. This represents a potential upside of 25% from the stock’s December 27 share price of ₹1,441.
Goldman Sachs is also bullish on the real estate sector. However, it has not included any real estate stocks in its top picks for 2025. Its strategy is focused on stocks that have experienced a 20% or more correction.
Information Technology:
The Nifty IT index experienced a gradual recovery of 26% in 2023 and 23.9% in 2024, following a 25% consolidation in 2022 due to weak demand from the US and Europe. Three brokers are ‘overweight’ on the IT sector. They anticipate a recovery in demand. This is due to further interest rate cuts by the Fed next year and a resilient US economy.
The pro-business policies of US president-elect Donald Trump and potential corporate tax cuts could boost demand for IT services. However, stricter immigration policies may lead to increased costs for Indian tech companies. Nonetheless, analysts remain optimistic about the recovery of the domestic IT sector.
Goldman Sachs has an ‘overweight’ rating on CE Info Systems Ltd. Jefferies is bullish on Infosys Ltd, Tata Consultancy Services Ltd, and Coforge Ltd. Motilal Oswal favors HCL Technologies Ltd. Motilal Oswal has adjusted its FY25 growth forecast for HCLTech to 3.5-5% because of strong deal wins and leadership in next-gen platforms. It has set a target price of ₹2,300 for HCLTech. This indicates a potential upside of 21.6%.
The three brokers are optimistic about real estate and IT. However, they have differing opinions on the auto and consumer durables sectors.
The Nifty Auto index saw a significant increase of 47.6% in 2023 and 26.7% in 2024, outperforming the Nifty 50, which has only gained about 10% in 2024 so far. The Nifty Auto index experienced a 50% surge in the first nine months of 2024, followed by a 16% correction in the last quarter. Mahindra & Mahindra Ltd and Samvardhana Motherson International Ltd were the top performers in 2024, with annual returns of 75.8% and 60.8%, respectively.
Goldman Sachs maintains an ‘overweight’ stance on the auto sector, anticipating continued SUV premiumisation, recovery in electric 2-wheeler demand, and increased exports. Jefferies is also ‘overweight’ on Eicher Motors Ltd, Mahindra & Mahindra, and TVS Motors Ltd in the auto sector.
On the other hand, Motilal Oswal is ‘underweight’ on the auto sector, predicting a slowdown in growth after three years of rapid expansion. Mahindra & Mahindra’s 12-month revenue growth of 11% is slower than its 3-year revenue compound annual growth rate(CAGR).
Consumer Durables
The consumer durables sector, excluding auto, presents a unique scenario. In 2024, the Nifty Consumer Durables index became the fourth best-performing sector. It delivered a remarkable 35% return. This closely mirrored its 33% return in 2023. Some companies were particularly noteworthy. These include Dixon Technologies (India) Ltd, Amber Enterprises India Ltd, Blue Star, and Kalyan Jewellers India Ltd. They stood out as top performers. These companies yielded over 100% returns within a year.
Goldman Sachs holds an optimistic outlook on consumer durables, anticipating increased investments from the burgeoning middle class in premium products. The firm has identified Kajaria Ceramics Ltd, Crompton Greaves, and Havells India Ltd as its top picks for 2025.
Motilal Oswal expresses bullish sentiment towards the consumer discretionary sector. This is attributed to the rapid shift in consumer purchasing behavior towards organized retail channels. Zomato Ltd has been added to its 2025 stock picks. The target price is ₹330. This offers a potential upside of over 20% from its December 27 share price of ₹271.45.
Conversely, Jefferies holds an ‘underweight’ stance on the consumer discretionary sector, citing expectations of an economic slowdown in India during the first half of 2025.
Given the conflicting recommendations within the sector, exercising caution is prudent. Consider adding the index to your watchlist until further clarity emerges. Conducting thorough research and selecting stocks with reasonable valuations and growth potential is advisable.
In summary, several factors may trigger a cyclical shift in the stock markets. These factors include the Union Budget for 2025-26 and trade policies under the new administration. Additionally, interest rate adjustments by the US Fed and the Reserve Bank of India are influential. Sectors that have been bullish could experience a slowdown, while new sectors may emerge as top performers.
While IT and real estate exhibit strong earnings potential, some analysts favor.
Stay tuned for more updates and insights on the stock market! For more insights on investing in the Indian stock market, check out resources like Moneycontrol and NSE India.
Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.