Global brokerages see up to 12% rise in Sensex in 2018; more than 30 stocks to bet on

Global brokerages such as BofAML, Morgan Stanley, Credit Suisse, and BNP Paribas see Indian market to touch fresh record highs in the next calendar year.

 

The year 2017 has been a blockbuster year for India markets with benchmark indices breaking above key resistance levels and the year 2018 is unlikely to disappoint investors. The S&P BSE Sensex which has already rallied over 25 percent could well see another 12 percent rally from current levels.

Global brokerages such as BofAML, Morgan Stanley, Credit Suisse, and BNP Paribas see Indian market to touch fresh record highs in the next calendar year.

BNP Paribas has the most aggressive target on Sensex among all the other global investment banks’ which have come out with their strategy reports. BNP Paribas maintains its overweight stance on Indian markets and sees the S&P BSE Sensex heading towards 37,500, which translates into an upside of nearly 12 percent from current levels.

The global investment bank said that it wants to play the upcoming recovery and benefit from the impact of the previous year’s policy measures, and we like the ease of stock selection. India suffered from reform-related economic destruction, but a recovery seems clear underway.

Morgan Stanley:

The global investment bank in its most bullish scenario see Sensex climbing Mount 40K by December 2018 if earnings growth accelerates to nearly 20 percent. 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 35700 (base case). In the base case scenario which has a probability of 50 percent, the BSE Sensex would trade at 15x one-year forward earnings, which is below its historical average.

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 FY2018and 27 percent in FY2019.

Credit Suisse:

As the 2019 general elections get closer, state elections are likely to get more market attention. This has limited direct economic impact, particularly after the budget is presented, but changes in market sentiment may drive volatility.

The market as a whole is not expensive on a relative basis, and while cuts should resume, we could still see double digit EPS growth in FY19. Top outperformers include names like SBI, ONGC, Tata Steel while Bajaj Finance, UltraTech, and Dr Reddy’s could underperform.

Nomura:

Saion Mukherjee of Nomura said the research house is bullish on India Equities with Nifty December 2018 target of 11,880. Their top stock picks are Reliance Industries, GAIL, HDFC Bank, SBI, Shriram Transport, Maruti Suzuki, M&M, Ashok Leyland and L&T.

Business is on the cusp of an upcycle which will drive strong earnings growth as corporate earnings-to-GDP ratio is at its lows, with significant contraction in margins and return on equity.

Nomura is overweight on financials, energy, infra/construction and healthcare while underweight sectors include IT, consumer staples, utilities & cement.

B0fAML:

The global investment bank sees the index slipping towards 32K towards the end of the next. BofAML said that bank said that it arrived at the valuations for the Sensex by using top-down estimates for earnings growth i.e. 15 percent and a 16.5x forward P/E multiple.

The S&P BSE Sensex currently trades at 18.5x forward which is well above its historical average of 15.3x. Large positive returns from current levels are only possible if the current elevated P/E multiple sustain so that the growth in earnings can drive stock prices. But, downgrades to estimates are still likely in 2018.

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