In the bull case scenario which has a probability of 30 percent, the S&P BSE Sensex could rally towards 41,500 on better-than-expected on policy measures as well as global factors. The earnings growth would also accelerate to 19 percent in FY2018 and 27 percent in FY2019.
The S&P BSE Sensex climbed nearly 7,000 points or 26 percent so far in the year 2017 but the rally may not be over yet as the index could well hit Mount 40K by December 2018 if earnings growth accelerates to nearly 20 percent in a bullish scenario, said a global investment bank in a report.
A combination of supportive global growth, improving capex, fiscal spending and a buoyant consumer augur well for growth in the year 2018. Morgan Stanley introduced its December 2018 Sensex target at 35,700 (base case), which translates into an INR and USD upside of 6 percent and 7.4 percent compared to MSCI EM index upside of 3 percent.
In the base case scenario which has a probability of 50 percent, the BSE Sensex would trade at 15x one-year forward earnings, below its historical average.
The growth will also accelerate slowly. The global investment bank expects earnings growth of 16 percent and 24 percent on a year-on-year basis in FY2018 and FY2019, respectively.
In the bull case scenario which has a probability of 30 percent, the S&P BSE Sensex could rally towards 41,500 on better-than-expected on policy measures as well as global factors. The earnings growth would also accelerate to 19 percent in FY2018 and 27 percent in FY2019.
And, in the bear case scenario which has a probability of only 20 percent could push the S&P BSE Sensex towards 25,000, if the policy response is tepid and global conditions deteriorate. The S&P BSE Sensex earnings grow by 7 percent in FY2018, and 23 percent in FY2019.
Morgan Stanley is going overweight on Industrials gave their positive view on the private capex. The global investment bank also likes corporate banks, infrastructure owners, discretionary consumption, domestic materials and software stocks while avoiding healthcare, staples, utilities, global materials, and energy.
Top stocks in Morgan Stanley's focus list include names like Bajaj Auto, M&M, Maruti Suzuki, ZEE Entertainment, ITC, RIL, Bharat Financial, HDFC Bank, ICICI Bank, IndusInd Bank, M&M Financial, Dr Reddy's Laboratories, Adani Ports etc. among others.
UBS remains overweight (OW) on auto parts and two-wheelers (2Ws) such as Eicher Motors. It is also positive on retail private banks, SOE banks and NBFCs (ICICI Bank, Bank of Baroda and LIC Housing Finance preferred picks).
In the consumer staples UBS prefers Marico, and in the IT services, TCS is preferred bet. In the property or real estate sector, UBS prefers Prestige Estates Projects, and in the telecom space, the global investment bank prefers Bharti Airtel and Bharti Infratel.
UBS added oil & gas to their OW sectors and Bharat Petroleum (BPCL) to their Most Preferred list. The global investment bank is underweight (UW) on Small and Midcaps (SMID), but prefer bottom-up ideas, including Dr Lal Pathlabs, Multi Commodity Exchange of India (MCX) and Voltas.
Here is a list of top 10 stocks ideas from global brokerage firms which could give up to 34% return in the next 1 year:
Brokerage: UBS
Eicher Motors: BUY| Target Rs38000| Return 25%
The management in the conference shed some light on demand for their motorcycles. They believe that the company is still underpenetrated even though Royal Enfield forms almost
6 percent of new motorcycle sales.
There are only 2-2.5 million of Royal Enfield motorcycles compared to 60m motorcycles and 100m two-wheelers plying on the roads in the domestic market
The company stated that almost 95 percent of their customer base comprises of commuters while only 5 percent of their customer base is of leisure motorcyclists.
The management believes that the new 650cc models should help grow the leisure motorcycling customer base for the company. Mgmt. is also focused on market development and brand awareness in its export markets.
ICICI Bank: BUY| Target Rs400| Return 27%
The loan growth for the bank is expected at 9-10 percent led by domestic loan book growth at 15 percent. Margins are likely to remain above 3 percent in FY18.
The NPL formation run rate might continue in H2; however, stress outside the watchlist is significantly lower compared to last year.
The IFRS adoption can significantly bring down credit cost in FY19; however, if IFRS is delayed then credit cost may remain high in FY19 as well. Bankruptcy cases are progressing on track and visibility on haircuts would be better in Jan-Feb.
Bank of Baroda: BUY| Target Rs230| Return 34%
The loan growth for the bank is expected at 9-10% led by retail loan book growth. Corporate loan book is expected to remain weak as loan repayments are higher.
The net interest margins (NIMs) are expected to improve and the bank expects to report NIMs for Q4FY18 at 2.5% from 2.3% in Q2FY18. Bank expects positive surprise (upgradation and provision reversals) from GNPL in FY19.
Bharti Airtel: BUY| Target Rs615| Return 24%
Bharti Airtel continues to see increasing trend in data consumption with average data usage per subscriber moving northwards from the levels of 4Gb which Bharti Airtel it saw in Q2FY18.
Bharti Airtel believes that current APRU is not sustainable for the Industry and expects APRU to inch northwards as Jio starts to take price hike.
While the cost optimization is largely done in Africa business, the key challenge remains revenue growth for Bharti Airtel in Africa. Similarly, the company is looking to expand scale in non-mobile India business.
BPCL: BUY| Target Rs670| Return 30%
The sales volume growth is driven by higher gasoline, ATF, and LPG. GST remains a big challenge with P&L impact of Rs1.7bn in 2Q being the first quarter of implementation. Non-fuel initiatives are improving the footfall.
BPCL's marketing volumes continue to grow at 4-5%, GRMs expected to stabilize at US$6 to 6.5/bbl for Mumbai refinery and Kochi refinery expansion to at least add US$2/bbl additional GRMs.
BPCL to enter into the field of Propylene-based petrochemicals utilizing Propylene to be available post-Kochi refinery upgrade and expansion.
Brokerage Firm: BNP Paribas
HDFC Bank: BUY| Target Rs2089| Return 12%
HDFC Bank is in BNP Paribas’s top pick in the Indian banking space. It believes that the bank is well-positioned to capture growth opportunities given its: 1) stable asset quality, 2) healthy 13.3% tier-1 ratio, 3) a strategic rural presence, and 4) a multitude of digital offerings.
IndusInd Bank: BUY| Target Rs1887| Return 13%
BNP Paribas likes IndusInd Bank on account of: 1) its liability franchise, which continues to improve, 2) strong growth momentum, which we expect will continue over the next few years, 3) the product mix change towards high-yield retail, which we believe will aid margin expansion, 4) consistent management performance in line with guidance over the past ten years, and, 5) in the long-term, IndusInd’s strategy fits well with our themes of deleveraging, capital accumulation and deposit gathering.
Infosys: BUY| Target Rs1130| Return 15%
Infosys is working towards 1) refocusing on traditional service lines, 2) re-skilling employees and improving productivity, 3) industry partnerships, and 4) acquisitions in digital technologies.
The global investment Bank believes that the stock is a play on recovering tech spending, especially in the US and Europe, in areas such as BFSI and manufacturing.
The disruptions from the recent board and management changes are largely behind us, and the recent results have been solid albeit unspectacular.
HCL Technologies: BUY| Target Rs1020| Return 19%
HCL CL Tech has a well laid out Mode 1-2-3 strategy to grow new services and offset shrinkage in traditional lines, aided by a well-diversified portfolio, with c58% of FY17 revenue from less competitive areas such as infra and engineering services.
BNP Paribas believes that FY18 revenue guidance, which implies about 2.6 percent QoQ USD growth in 2H at stable margins, is achievable given strong deal wins and expanding IP relationships (IBM, DXC).
HCL Tech is also well-placed to guard against potential US visa reform due to a revenue mix that is more offshorable, and about 55 percent of its US-based employees are nonimmigrants.
ZEE Entertainment: BUY| Target Rs640| Return 10%
Zee is the largest listed television broadcaster in India. Zee’s financials have been resilient despite the slowdown in consumer spending. BNP Paribas expects improvement in revenue growth for consumer companies and increased advertising spend, leading to a mid-teens ad revenue CAGR over FY17-20E for Zee.
Zee also remains well positioned to benefit from an increase in subscription revenue with better monetisation of phase-3 and phase-4 digitization markets.
MORE WILL UPDATE SOON!!
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