Outlook 2025: HDFC Securities predicts modest Nifty 50 returns next year; here’s a look at its model portfolio

In a recent report, HDFC Securities has forecasted moderate returns for India’s benchmark Nifty index over the next 12 months. The brokerage highlighted that large-cap stocks are likely to offer superior risk-adjusted returns, outperforming mid- and small-cap indices, thanks to stronger earnings growth and more attractive valuations.

“The Nifty 50 index is now trading at 23x FY25 and 20.5x FY26 consensus EPS, indicating modest upside potential in the next 12 months,” it said. This implies that investors may face a period of lower-than-expected returns, as the broader market may have already priced in some of the expected growth.

Sectoral Picks

In terms of sectoral preferences, HDFC Securities remains bullish on large banks, top-tier IT companies, consumer durables, capital goods, real estate, and cement and building materials. These sectors are seen as key beneficiaries of the anticipated growth in industrial activity and rural consumption. However, the firm maintains an underweight stance on several sectors, including automobiles, consumer staples, oil and gas, mid-cap IT, small banks, and non-banking financial companies (NBFCs).

HDFC Securities also expressed a more constructive view on discretionary sectors compared to staples, suggesting that consumer spending could shift towards discretionary goods and services as economic conditions improve.

HDFC Securities’ Model Portfolio

The brokerage shared its top sector-wise stock picks, expressing optimism about Maruti Suzuki and Hero MotoCorp in the auto sector. In the BFSI space, its preferences included Axis Bank, Federal Bank, and Canfin Homes. In the realty sector, it favoured Sobha, while in the pharmaceutical sector, it recommended Torrent Pharma. 

Among metal stocks, Tata Steel and SAIL emerged as the brokerage’s top choices. In the IT sector, it favoured LTIMindtree and Info Edge.

FY26 Earnings Outlook

Moreover, the brokerage projected a volume-led growth trajectory for FY26, while cautioning that the story of margin expansion is largely over.

It highlighted that the low base of FY25 earnings would provide substantial support for growth in FY26. According to HDFC Securities, the Indian economy’s growth in 2025 will be driven by investments and rural consumption, signalling a positive outlook for sectors such as industrials, manufacturing, real estate, and allied industries, as well as rural economy-facing sectors.

“Projected earnings growth for HSIE coverage universe (230 stocks) is 3.7 per cent and 16.6 per cent for FY25 and FY26, respectively. After extraordinary earnings growth CAGR of 17 per cent over FY19–FY24, it will get normalised to 10 per cent in the next two years,” predicted the brokerage.

As per HDFC Securities, the normalisation will be driven by factors such as the exhaustion of soft input costs and the high base effect of previous years. While growth rates will stabilise, its forecast suggests that FY26 will mark a return to a more sustainable growth pace.

BFSI (Banking, Financial Services, and Insurance), industrials, cement, energy, and IT are the sectors that will lead earnings growth, as per the brokerage. The firm noted that commodity-consuming sectors would no longer benefit from the deflation in commodity prices, which had previously aided margins. Consequently, any future earnings growth in these sectors will need to come from top-line drivers, such as increased volumes or higher pricing, as margin expansion is largely exhausted, it pointed out.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.