Elara Securities has expressed a preference for ICICI Bank and PSU banks over HDFC Bank in its latest sector recommendations, marking a divergent view from Ambit Capital's continued backing of HDFC Bank. According to CNBC TV18, Elara Securities says banking remains one of its top sector bets, while maintaining a constructive stance on IT, NBFCs, DMart and the Manipal Health IPO. The brokerage remains cautious on HUL as competitive pressures persist, highlighting the varied approaches among major brokerages in the current market environment.
Ambit Capital has maintained a defensive investment stance as India's equity market faces valuation challenges relative to other emerging markets. According to the brokerage's latest weekly strategy note, India currently offers one of the weakest risk-reward profiles among major emerging markets, with corporate earnings beginning to improve after several subdued quarters but the pace remaining insufficient to justify current valuations. The brokerage argues that the combination of expensive valuations, weak earnings revisions and geopolitical risks leaves little room for disappointment in Indian equities, prompting its preference for large cap companies with stronger balance sheets and earnings visibility over small and midcap stocks.
Ambit's central argument centers on India's Nifty currently trading at 20 times trailing earnings while consensus expects only 3% one-year forward earnings growth in US dollar terms, placing India in what the brokerage describes as the 'high valuation, low growth' quadrant among emerging markets. As reported by Ambit Capital, this compares unfavorably to other Asian markets: South Korea trades at 22.0 times P/E with 203% expected earnings growth, while Taiwan trades at 30.0 times P/E with 68% expected growth. The brokerage noted that India lacks similar AI-linked companies capable of generating comparable earnings upgrades, resulting in global capital increasingly gravitating towards markets where the next growth leg is unfolding.
Reflecting its cautious market view, Ambit retains Buy ratings on 24 large-cap companies including Mahindra & Mahindra, Ather Energy, HDFC Bank, State Bank of India, ICICI Bank, Axis Bank, Max Financial Services, Godrej Consumer Products, Marico, Sun Pharmaceutical, Max Healthcare, Fortis Healthcare, HealthCare Global, Tech Mahindra, PB Fintech, Reliance Industries, Bharti Airtel and Indus Towers. The brokerage maintains Sell recommendations on UltraTech Cement, Britannia Industries, HCL Technologies, TCS and Infosys, while Larsen & Toubro and ITC remain unrated. Tech Mahindra is the only major IT services company in Ambit's preferred portfolio, reflecting the brokerage's stock-specific rather than sector-wide approach to technology.
Despite its cautious medium-term outlook, Ambit acknowledged that corporate earnings are beginning to improve with growth in sales, operating profit and net profit for both Nifty 50 and NSE100 expected to accelerate in the June quarter after three subdued quarters. According to the brokerage's analysis, Nifty 50 (excluding oil & gas) is projected to show 20% sales growth, 8% EBITDA growth and 10% PAT growth in Q1 FY27, while NSE100 (excluding oil & gas) is expected to deliver 22% sales growth, 7% EBITDA growth and 10% PAT growth. Results reported so far indicate that banks have been the primary source of strength with Nifty companies delivering 17.5% sales growth and 10.5% net profit growth, with the BFSI sector recording 30.7% sales growth substantially outperforming expectations.
Even after recent market pullbacks, Ambit believes Indian equities remain expensive by historical standards with India's market capitalisation-to-GDP ratio (Buffett Indicator) at 126%, which remains 26% above its 10-year average of 100%. The brokerage emphasized that foreign institutional investors have turned buyers again after four consecutive months of net selling, purchasing a net $0.3 billion of Indian equities during the week ended July 24, while domestic institutional investors also invested $0.3 billion, extending their buying streak to 14 consecutive weeks. Ambit's quantitative earnings revision strategy has historically generated 4.4% annual excess returns in large-cap stocks and 5.5% in mid-caps since 2005, supporting its selective stock picking approach over aggressive market positioning.
