Nifty upside limited, but stock-specific opportunities remain: Pramod Amthe

India’s equity markets may continue to navigate a challenging landscape marked by inflationary pressures, uncertain monsoon trends, and volatile crude oil prices. However, despite these risks, investors can still find opportunities in select sectors and stock-specific stories, according to Pramod Amthe from InCred Capital.

Speaking to ET Now, Amthe highlighted the key factors influencing earnings expectations, sectoral preferences, and his outlook for the broader market over the coming year.

Earnings Estimates Face Pressure
Corporate earnings forecasts have already seen some downward revisions following the March quarter results. According to Amthe, higher oil prices have been a major contributor to these cuts.”We have already seen a decent amount of downgrades coming through in earnings post the March quarter results, especially where the oil price hikes have partially been retained, leading to almost a 2% to 3% Bloomberg consensus Nifty earnings cut in the last 60 days, versus some stability or improvement which we have seen post the GST cut intervention by the Government of India.”

While oil-related concerns have been partly addressed through government intervention, uncertainty remains around the progress of the monsoon season.

“The rainfall remains to be seen. The start has been wobbly, and we need to see how that will progress. Some of the exposed sectors or companies are still guiding for a flattish to positive trend, which looks a little tough.”

Amthe noted that rural demand has remained resilient over the last few years, but any significant disappointment from weaker rainfall could create fresh challenges.

Why the Market Target Remains Conservative
Amthe’s strategy note projects the Nifty at 25,439 by March 2027, implying relatively modest upside from current levels. However, he explained that the target reflects a blended approach based on multiple scenarios rather than a single forecast.

“If you look at our broader target arrival, it is more of a blended one based on different scenarios panning out. Our base case assumes oil below $90 and a normal monsoon. In that scenario, we look at 26,705, which is based on 19 times one-year forward earnings and offers about 11% upside.”

At the same time, the possibility of elevated oil prices and weaker monsoons cannot be ignored.

“If you look at the bear-case probability, which has a 50% chance, then there are flattish returns considering the fact that oil can be much higher and monsoons can be worse than what we thought.”

Despite these risks, Amthe remains constructive on equities due to attractive valuations.

“On a blended basis, we are constructive as valuations are comfortable at below minus one standard deviation on the 10-year mean, and that is where the 6% upside potential looks possible for us at the current juncture.”

Focus on Companies With Pricing Power
With inflation likely to remain elevated for the next few quarters, Amthe believes investors should focus on businesses capable of passing on higher costs without materially impacting demand.

“Inflation seems to be part of the game, whether driven by oil or rainfall-related shortfalls. Inflation is here to stay for a couple of quarters.”

He prefers premium consumption businesses and replacement-driven categories where demand remains relatively stable even during inflationary periods.

“We would look for companies that have better pricing power and where demand destruction can be the least. Premium consumption plays and replacement market plays are areas where pricing can be passed on more effectively.”

Interestingly, he noted that pharmaceutical companies have historically performed well during inflationary periods.

FMCG and Paints Turning Attractive
Among consumer-focused sectors, Amthe sees improving opportunities in FMCG and paints.

“Considering valuations and some green shoots, we have been turning constructive on the FMCG space and also on the paint sector, where easing valuations and some stability in business are giving us confidence.”

The combination of improving demand trends and more reasonable valuations has strengthened the investment case for these sectors.

Autos: Prefer Passenger Vehicles Over Tractors
Within the automobile sector, Amthe sees a mixed picture.

The biggest concern lies in tractors, where rural demand remains closely tied to rainfall performance.

“The tractor industry seems to be exposed and can get into a double-digit decline if things go out of hand on the rainfall front.”

Passenger vehicles, however, continue to exceed expectations.

“The growth outlook for passenger cars has surprised everybody, and we expect the car industry to clearly accelerate double-digit growth post GST reforms.”

Two-wheelers remain on a slower growth trajectory, while a stable oil environment could provide support for commercial vehicle demand.

“We are more inclined towards cars, and especially with the Middle East settling down on oil, it gives us more comfort on the commercial vehicle cycle.”

Overall, Amthe maintains an overweight stance on automobile manufacturers while remaining neutral on auto component companies.

High-Conviction Consumption Picks
Among individual stock ideas, Amthe highlighted Hindustan Unilever as a recent addition to his firm’s high-conviction list.

“We introduced HUL into our high-conviction list in May, where the valuation comfort is better. With inflation, we expect near double-digit top-line growth.”

He believes FMCG companies could benefit from revenue recovery while maintaining margins over the coming quarters.

“The earnings have been flattish for HUL for the last three years, so that is the new high-conviction idea we have brought in.”

The firm also continues to favour Maruti Suzuki and Tata Motors.

“Within our broader space of high-conviction ideas, we have been positive on names like Maruti and Tata Motors, and we continue to hold on to them.”

Weak Monsoon Could Hurt Smaller FMCG Players More
While a weak monsoon remains a risk for consumption, Amthe believes larger FMCG companies are better positioned than smaller rivals.

“We feel companies like Dabur and others will be more exposed than HUL.”

He expects large companies to benefit from stronger sourcing capabilities and potential market-share gains if inflation creates stress for smaller competitors.

“There will be some breather available on market share for large players, along with sourcing benefits, which should help them relatively outperform on volume growth.”

NBFCs Lead Financial Sector Preferences
Within financials, Amthe’s preference order is non-banking financial companies first, followed by private banks, and then public sector banks.

“Looking through the historical data of the last couple of decades, the clearest standout has been NBFCs outperforming because of their distribution reach despite the cost of funding going up in an inflation environment.”

Private sector banks also tend to outperform their PSU counterparts during periods of elevated inflation.

“Our outlook for the next year aligns with the thought process that NBFCs are preferred, followed by private banks, with PSUs being the last preference.”

The Bottom Line
While investors continue to monitor developments in crude oil prices and the monsoon season, Amthe believes opportunities remain available in sectors with pricing power, strong balance sheets and resilient demand. FMCG, select auto manufacturers, NBFCs and private banks currently top his preference list, while tractor makers and some rural-linked businesses could face pressure if rainfall disappoints.

For investors, the message is clear that broad market returns may be moderate, but stock selection and sector positioning could make a significant difference in the months ahead.