Foreign brokerages bet big on 2020, hope for turnaround in fundamentals

Despite the economic slowdown, BNP Paribas, Morgan Stanley, Nomura and Credit Suisse are optimistic

Foreign brokerages are betting big on 2020, hopeful of a turnaround in fundamentals. This is set to give a further fillip to market indices, which are already at all-time highs.

Separate reports issued by a number of foreign brokerages, including BNP Paribas, Morgan Stanley, Nomura and Credit Suisse have turned bullish for this year.

BNP Paribas has set a target of 44,500 for the Sensex, which had breached the 42,000-mark for the first time during intra-day trade on Thursday. 

The France-headquartered investment bank, in a note, said that consensus earnings growth for benchmark Indian companies is currently at 11 per cent for the financial year ending March 2020 (FY20), for companies with positive earnings growth. It is 19 per cent for FY21.

“We think even though India’s earnings remain lacklustre, improved sentiment could spur select stocks, especially those that best satisfy our requirements on quality, growth, and valuation, including those in the mid- and small-cap areas,” said a January 2020 ‘Inside India’ report.

The report was authored by Abhiram Eleswarapu, head of India equity research at BNP Paribas Securities India.

Morgan Stanley India is also betting on higher growth on the back of policy action, including tax cuts and cash transfers, in its January 15 Indian Equity Strategy report authored by equity strategists Ridham Desai and Sheela Rathi.

“While earnings growth is set for improvement, we still believe that policy action cannot rest to ensure that both growth and stock prices sustain into 2020,” it said.

Japan-headquartered Nomura has set a Nifty target of 13,070 for December 2020, implying a six per cent upside from the current levels. The 50-share bluechip index closed at 12,352 on Friday.

“We expect a gradual recovery through 2020 with a lagged positive impact of monetary stimulus and a policy thrust driving the investment cycle. Our recovery thesis assumes a supportive external environment with benign oil prices and supportive foreign fund flows,” Saion Mukherjee, head, equity research, Nomura, wrote in a note titled ‘cautiously constructive’.

Earlier, Credit Suisse, in a note, had said the markets could continue to make positive strides despite red flags on the economic front.

“Despite continuing economic weakness in the Indian economy, Credit Suisse expects headline indices to continue to stay elevated. They will be driven by steady fund inflows and earnings growth of firms that are not directly hurt by domestic macroeconomic weakness. They benefit from factors such as rising penetration of products and market share gains,” it had said in a release.

The Swiss investment bank says market performance could be lopsided and investors should opt for “safety and quality” in 2020.

“We expect the narrow market performance to continue for now, as economic uncertainty continues to push funds into the “safe” stocks, resulting in higher market concentration. 

Market performance in the coming year would be affected by how financial year (FY) 2022 earnings move. We expect this to settle at a low-to-mid-teens growth on reduced FY21 base,” wrote Neelkanth Mishra, Asia Pacific and India equity strategist at Credit Suisse.