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.

MORE WILL UPDATE SOON!!

The year 2018 will be all about individual stocks; 6 sectors looking attractive

The market is unlikely to break out in a hurry and sectors which did well so far could underperform in the next one year, while the beaten-down sectors such as PSU banks, roads, metals, industrials etc. will remain in demand in the next 6-9 months.

   

The S&P BSE Sensex rallied by about 25 percent so far in 2017, largely on the back of P/E re-rating while earnings stayed flat. Going into 2018, earnings are likely to pick up and P/E multiple could see de-rating, Manish Sonthalia, Head Equities- PMS at Motilal Oswal AMC said in an interview with CNBC-TV18.

The market is unlikely to break out in a hurry and sectors which did well so far could underperform in the next one year, while the beaten-down sectors such as PSU banks, roads, metals, industrials etc. will remain in demand in the next 6-9 months.

Here is a list of top 6 sectors which are looking attractive:

NBFCs which outperformed benchmark indices in the year 2017 may underperform in the next 12 months. “We are going to see rate increase sometime in FY19 and rates are going to harden with inflation and twin deficit coming back could weigh on NBFCs,” said Sonthalia.

Dairy:

The dairy theme is likely to do well given the fact that PM Modi plans to double the farm income in the next 3-4 years. In the dairy sectors, the focus will be on companies who are selling liquid milk rather than value-added products because the work capital cycle and cash conversion cycle is much more favourable in liquid milk.

Midcap IT & Pharma:

In the Midcap IT segment, Sonthalia likes L&T Technology Services and in terms of pharma space, we are betting on Ipca Laboratories, and Alkem Laboratories.

Gas stocks:

We are positive on City gas distributors — Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL). The economy is moving towards a gas economy which augers well for both the stocks. The valuations might look stretched but with PNGRB having a chairman, decision on new notified will come soon which will be positive for both these companies.

Real Estate:

Real Estate is entering into interesting times going into the future. The whole retailing space and residential housing space is witnessing a shift from unorganised to organised. The known industry plays are likely to see a bigger traction in terms of volume size as opposed to lesser known ones.

Jewellery:

In the jewellery space, Sonthalia likes Titan Company Ltd. The company is a major thematic play on the unorganised shifting to the organised. The hyper growth is here to stay.

MORE WILL UPDATE SOON!!

Volatility grips Dalal Street as Sensex slips 174 pts ahead of Fed rate decision

Investors could be cautious ahead of key events such as US Fed meet outcome, along with Gujarat elections’ second phase and the following opinion polls which will be out on Thursday.

 

In what could be termed as a volatile day of trade on D-Street, benchmark indices witnessed wild swings in both directions, before ending the day on a weak note. Investors could be cautious ahead of key events such as US Fed meet outcome, along with Gujarat elections’ second phase and the opinion polls which will be out on Thursday. Sentiment could also have been hit on the back of subdued economic data.

A gap-down opening was seen on the Indian market, but the index soon trimmed some of those losses to trade rangebound in the afternoon. But things took a turn for good, when a rally in banks, along with other frontline indices helped them trade positively. Sensex gained around 176 points intraday, before witnessing a sudden U-turn and falling over 200 points intraday in the penultimate hour of trade. The Nifty, too, had gained around 59 points intraday.

The Sensex closed down 174.95 points or 0.53 percent at 33053.04, while the Nifty was down 47.20 points or 0.46 percent at 10193.00. The market breadth was negative as 944 shares advanced, against a decline of 1718 shares , while 150 shares were unchanged.

Kotak Mahindra Bank, ONGC, HPCL and IOC were the top gainers, while BHEL, Tata Motors DVR, Vedanta and Cipla lost the most.

Nifty Midcap was down 1 percent. About two shares declined for every share rising on the NSE. All sectoral indices ended in red. Metal, pharma, realty and PSU bank fell the most, down 1-2 percent, followed by auto, FMCG and IT.

It was another day of losses on the bourses as key indices started the day on a subdued note and traded in the negative zone on mixed Asian cues and data showing a surge in India's consumer price inflation and a moderate growth in industrial production. This becomes a very tricky situation for the Central Bank to handle. While lower interest rates in the economy should likely give a boost to economic growth, higher inflation discourages the Central Bank to reduce rates as it might further spike inflation. This means that the markets could be more volatile in the near future as indecisiveness dominates sentiment. Both the benchmark Sensex and the Nifty finally closed the day with losses.

Meanwhile, oil stocks IOC, HPCL, BPCL bounced back, up 1.5-2 percent, after Brent crude cooled off after hitting USD 65 per barrel in the last two days.

Shree Cement, UltraTech Cement, JK Lakshmi Cement, JK Cement and Prism Cement gain 1-6 percent post SC order that allowed the use of petcoke.

Canara Bank, Allahabad Bank, LIC Housing Finance, Manappuram Finance, HDIL, DLF, Peninsula Land, Indiabulls Real Estate, Voltas, Havells, Petronet LNG, Century Textiles, Tata Elxsi, Religare Enterprises, HEG, Graphite India and Rain Industries were down 1-5 percent.

Bharti Airtel shares closed over 1.3percent lower after gaining nearly 2 percent intraday after the company decided to sell 20 percent stake in its DTH arm to US private equity firm. The rally had spilled over to Dish TV as well, which gained 4 percent, before falling around one percent.

InterGlobe Aviation shares fell 4 percent on equity dilution by promoter entities through offer for sale that opened for subscription. Two promoter entities of the IndiGo owner planned to offload shares worth at least Rs 1,245 crore through the offer for sale route on Wednesday and Thursday.

JB Chemicals & Pharmaceuticals ended flat, before gaining 3 percent on receiving approval from the US health regulator for anti-hypertensive drug.

Rico Auto Industries shares rallied more than 3 percent intraday Wednesday on signing a joint venture agreement with Singapore-based company. The stock ended 0.20 percent higher.

Markets continue to look weak overall with the real estate sector beginning to sell off too; what went up the highest in the preceding rally, looks to be correcting now. Ahead of the Fed policy decision tonight and the Gujarat exit polls soon after, we recommend a wait-and-watch policy at this juncture with a bias on the short side.

MORE WILL UPDATE SOON!!