BNP Paribas Upgrades India, Raises December Sensex Target To 42,000

Global investment banks have started raising their outlook for Indian markets. Goldman Sachs and Morgan Stanley have already raised their outlook or target price for Indian markets in March which is a strong signal for the bulls.

BNP Paribas has upgraded its rating on India to ‘overweight’ from ‘neutral’ and raised its Sensex target for end-December to 42,000 points from 40,000 earlier, citing stabilisation of corporate earnings. 

Earlier on Monday, BSE's 30-share Sensex rose as much as 1.14 per cent to a record high of 39,115.

“We downgraded India from overweight to neutral in late June 2018 on concerns over downward earnings revisions, likelihood of currency depreciation amid increasing oil price and unjustifiably high premium valuation relative to Asian peers,” Manishi Raychaudhuri, Asia Pacific Equity Strategist, said in a report. 

“Currency concerns appear to be behind us consequent to flow recovery and revival in some macroeconomic variables seem to be paving the way for some degree of earnings stabilization,” he said. 

Last month, Morgan Stanley had raised its Sensex target for December 2019 to 42,000 in base case scenario (50 per cent probability) and to 47,000 in a bull case scenario (30 per cent probability), and projected earnings to expand of 21 percent year-on-year in 2019 and 24 per cent in 2020. 

Another global financial services major Goldman Sachs also upgraded its view on India to ‘overweight’ this past fortnight, and projected Nifty to reach 12,500 in the next 12 months, up from its previous target of 11,700. 

BNP's Raychaudhuri agreed the 19-20 per cent earnings growth estimates for 2019-2020 still appear aggressive. “Earnings growth estimates of 14-16 per cent – slightly higher-than-expected nominal GDP growth in these years – is more credible, and growth estimates in financials, consumer discretionary and healthcare appear too high,” he said. 

“That said, a couple of macro influencers of earnings are clearly on the mend. The long-awaited private capex cycle appears set to commence, especially after the general election outcome, when political uncertainty should no longer hold back companies from finalizing their investment decisions,” he said. 

Raychaudhuri pointed out that average industrial capacity utilization has over the past five quarters, inched up by 7 per cent to reach around 78 per cent in September– close to the levels where companies usually make capacity expansion decisions. 

“Moreover, RBI has, since February, embarked on a rate slashing path that is likely to bring down average cost of capital, thereby enhancing the possibility of higher excess return generation by new capacities,” he said, adding that real interest rates in India are still way too high, and the scope for reduction seems significant unless the economy faces an inflation shock. 

“In the current environment of benign food and commodity prices, the latter possibility seems remote,” he said. 

Source: ET Markets

Image Source: MoneyControl


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