The Nifty50, Nifty Midcap 100, and Nifty Smallcap 100 indices have declined 12%, 14%, and 16%, respectively, from their recent peaks in the third quarter of financial year 2025. According to brokerage firm JM Financial, valuations have become relatively less expensive, with Nifty50 large-cap valuations falling below +1 standard deviation (sd).CompanyValueChange%ChangeFollowing the double-digit market correction, the Nifty50 large-cap stocks seem less expensive, trading below +1 sd. The brokerage mentioned that the bond yield premium above earnings yield suggests the market is cheaper than P/E (price-to-earnings) multiples indicate.However, midcap and small-cap valuations remain high despite potentially stronger earnings growth compared to large caps.
Nifty50 EPS growth
JM Financial in its note said that the Nifty50 EPS growth will remain tepid at 3.8% in FY25, but it could be much better in FY26E.”We pencil in an 18.3% growth for the Nifty50 EPS and this is based on the following reasons: ‘nil tax’ up to Rs 12 lakh and rejigging of tax slabs should support consumption (both discretionary and non-discretionary), especially in the urban economy; unlike CY24, the rural economy should do better in CY25 on the back of good monsoons and reservoir levels improving above long period averages; and government capex growth should be much better at 10% in FY26 vs. 7% in FY25,” it said.
RBI rate cut
Further, the brokerage said that a change in guard at the Reserve Bank of India (RBI) with a new Governor has sparked hopes of the start of the rate cut cycle from February 2025 .The brokerage highlighted the following top stock picks, along with their expected upside and target prices for FY26—Reliance Industries (RIL) – 31.2% upside, target price ₹1,660
TCS – 14.9% upside, target price ₹4,680BHEL – 79% upside, target price ₹358ITC – 14.7% upside, target price ₹530Bajaj Finance – 16.9% upside, target price ₹9,350Larsen & Toubro (L&T) – 16.5% upside, target price ₹4,015Sun Pharma – 20.1% upside, target price ₹2,094Maruti Suzuki – 16.9% upside, target price ₹15,100Hindalco – 29.5% upside, target price ₹760KPIT – 58.9% upside, target price ₹2,250
