BNP Paribas sees Sensex at 44,500 by 2020-end

A clear division was visible in the performance of the Sensex/Nifty and the rest of the stocks in year 2019. Even in the large-cap space, only a handful of stocks such as Reliance Industries, HDFC and HDFC Bank lifted Sensex and Nifty to new heights. Others remained sluggish, leaving investors more perplexed. Will 2020, turnaround fortunes of investors?

Despite headwinds such as slower economic growth, lack of private consumption and liquidity concerns continue to remain, most investment advisors remain bullish on India. “India, despite its sharp economic slowdown, offers high quality compounders and a few attractively valued candidates poised for a potential recovery,” said BNP Paribas in its Asia Strategy Report 2020.

The global fund manager has an ‘overweight’ stance on Sensex, which is expected to reached 44,500 in 2020.

According to Manishi Raychaudhuri, the only factor potentially supporting investments seems to be the headroom that RBI still has by way of cutting interest rates and the eventual transmission of benchmark interest rates to lending rates.

It continuously focus on quality and select attractively-valued turnaround candidates among consumer and consumer proxies, the global fund house said. “We reduce weight on ‘energy’ by excluding Reliance Industries and increase weight on ‘IT’ by including Infosys ,” the global fund house added. Similarly it prefers HDFC over IndusInd Bank and believes Bharti Airtel could be the biggest beneficiary of market share gains.

UBS has been constructive over the past three months. “We believe the risk-reward is becoming less attractive in the near term. Our base-case target for Nifty by June 2020 is 12,300, based on 18x forward PE multiple, with upside/downside scenarios at 13,300/10,300. Recent announcements are a sentiment booster and could help support multiples.”

Near-peak multiples

According to the global financial major, a sharp slowdown in retail inflows into equity markets, the declining trend in power generation over the past four months, signal tail risks to Indian markets, especially given the current near-peak multiples, post the recent rally.

“Retail inflows into equity markets have been key to support Indian markets over the past four years, despite weak earnings momentum. This trickled down to a 41-month low. Both of these point to the tail risks in Indian markets, especially given current near-peak multiples again, post the recent rally,” says UBS.

Kotak Securities says that rate cuts could be postponed to FY21 as inflation is expected to remain above RBI’s target of 4 per cent in FY20. “We expect Nifty-50 earnings to go up by 10 per cent and 27 per cent in FY20 and FY21 respectively,” it said and added Nifty-50 is trading closer to its peak valuations. At 17.5x forward PE, Kotak expects Nifty-50 to touch 13,400 by end of December 20. While it expects small-caps to outperform if economy revives, it advices investors to avoid poorly-governed companies and stay focused on good quality management-driven companies having high earnings growth and reasonable valuations.

Another domestic broking house Axis Direct expects 2020 to be a good year for equity investments, especially ‘mid-caps’, following aggressive reforms undertaken by the Centre treading the fiscal prudence path.

Dolat Equities feels that it could well turn out to be a tale of two halves. “For the first half, we believe that the markets and investors will watch out the impact of these measures, and for a much more verifiable evidence of return of growth. And play for the second based on how the earnings growth syncs with the broader dynamics of valuations and sector weightages. Themes to play out in 2020 are: telecom (positives outweigh negatives and support from the government; PSUs (headroom for upgrade), it added.

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