Mount 40K possible for Sensex by December 2018; top 10 stocks which could giveThe 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.
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