Nifty can hit 29,000 next year on earnings growth, attractive valuations: Compounding Asset CIO

The Nifty 50 index could advance toward the 29,000 level over the next year driven by robust corporate earnings and attractive valuations, according to Niket Shah, Founder and CIO of Compounding Asset Partners.Speaking alongside Anirudh Naha, CIO at PGIM India Asset Management, the market experts outlined their investment strategies for Samvat 2083, identifying opportunities in large-cap banks, metals and mining, midcap information technology, discreionary consumption, and the electric vehicle ecosystem.A resurgence in the banking, IT, and consumer sectors is expected to propel the benchmark index. The Nifty is on track to achieve earnings per share of ₹1,450 next year, which at a 20-times multiple translates to a target near 29,000.The latest reported quarter was the strongest in four years, with topline growth at 22% and bottom-line growth at 24%. Valuations remain cheap, with the index recently trading at 16 to 17 times one-year forward earnings, and there are no signs of an earnings slowdown despite a weaker monsoon.Valuations in the midcap segment remain elevated, making largecaps a more attractive destination for capital deployment over the next three to four years.Largecap earnings growth is currently around 24-25%, while midcap earning growth is above 25%.

"Incremental returns in this market will largely be driven by your earnings growth coming through, which, frankly speaking, in spite of all the corrections that we have seen in the market, has been reasonably strong," Naha explained.Within the largecap space, private sector banks and metals and mining offer the best risk-reward profile. The preference leans toward banks over non-banking financial companies due to potential net interest margin pressures facing the latter, with asset quality in private banks no longer a concern.Additionally, discretionary consumption companies in the mid-and smallcap space present opportunities where earnings and strong cash flows are not being adequately recognised by the market.On specific sectoral bets for the next 12 months, mid-cap IT services companies such as Persistent Systems and Coforge are well-positioned to gain market share from larger peers. "We are seeing a lot of IT services deals now moving from time and material to outcome based, and that's going to be a big trend going forward," Shah noted.Watch the full conversation hereThe electric vehicle segment also offers significant potential, particularly for cars priced under ₹20 lakh alongside battery chemicals for anodes and cathodes as the government pushes for import substitution. Furthermore, high power costs in Europe are making forging and casting manufacturing unviable there, a shift expected to drive tremendous traction for Indian companies in that space, alongside emerging opportunities in electronics and space technology.Catch all the latest updates from the stock market here