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Global banking major BNP Paribas told BusinessLine that the Sensex could rally above 43,000 in the next 12 months.
BNP had set a Sensex target of 40,500 for December 2019. But, according to Abhiram Eleswarapu, Head of India Equity Research/ Analyst at BNP Paribas, if one factors in the recent tax cuts and announcements by Finance Minister, Nirmala Sitharaman, there is potential of another 8 per cent upside to the set Sensex target of 40,500.
As per Eleswarapu, the enhanced target for Sensex was achievable on the condition that entire tax cuts go into the earnings of all the Sensex companies.
“There is potential to add another 8 per cent upside to our current Sensex target of 40,500 on the back of tax cuts. The condition is that everything else remains constant and complete tax cuts go down into the earnings of the company,” Eleswarapu told BusinessLine over the phone.
Effectively, it means that companies are less likely to pass on the entire benefits of the tax cuts to consumers.
Eleswarapu further said that, largely, the small and mid-cap stocks were trading below historical averages, which suggests a case for broadening choice of stocks.
“We still think that despite global growth slowing, more accommodative central bank monetary policies could continue to favour a near-term rally in India,” Eleswarapu said in BNP’s India strategy report.
“The tax cut announcements have a direct impact on several inputs to our quality list models. Thus, despite only recently re-balancing our lists, we are forced to make changes to them yet again. The prominent largecap additions are Britannia, UltraTech Cement, Power Grid, GAIL and Hero MotoCorp, while the midcap ones are Nestle India, GSK Consumer and AU Small Finance Bank. Our smallcap additions include Manappuram Finance, Repco Home Finance and Symphony,” BNP report said.
BNP further said that despite the decline in global growth and the rising geopolitical risks to oil prices, there are more accommodative central bank monetary policies kicking-in across the world.
It stated that these policies have been led, recently, by the European Central Bureau (ECB) and then by the US Fed this week. “Such a scenario could continue to favour a near-term rally in India, in our view, and investors likely broadening their choice of stocks,” BNP said.
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