Three brokerages reduce indices' targets, two bullish

Earnings weakness and global turmoil primary reasons for cautious outlook

Three brokerages have cut targets for domestic benchmark indices, citing earnings weakness and the turmoil in global equities.

But foreign brokerage Goldman Sachs retained its overweight call on India, with a 12-month Nifty target of 9,300. Citi remains bullish and expects the Sensex to touch 32,200 by end-December.

Barclays reduced its 12-month forward Nifty target to 9,642 from 10,219, citing postponement in earnings recovery. "Indian earnings have now remained stuck in single-digit growth territory for the past three years. This year is following a similar pattern, with downgrades to FY16 estimates persisting," it said on Monday. The brokerage expects growth to rebound in the second half of this year, helped by consumer goods (staples and discretionary), financials, health care, and capital goods.

"On a top-to-down basis, our forecasts are underpinned by an expectation of better fiscal policy in terms of higher capital expenditure by the government and an improvement in consumption as lower oil prices trickle to consumers. Our expectations from the monetary policy are more muted: Our economists look for a 25-basis-point rate cut before March 2016 and FY16 average CPI (consumer price index) of five per cent," the report said.

Macquarie has trimmed its Nifty target for December to 8,700 from 9,600. The brokerage expects earnings' weakness to continue in the quarter ended September.

Domestic brokerage Ambit Capital cut its end-FY16 Sensex target to 28,000 last week. The brokerage sees risks of a delayed economic recovery from headwinds such as a major real estate price correction, a banking system blow-up, and the government's inability to speed up economic reforms.

"We are forced to revisit and revise our trailing Sensex price-to-earnings multiple from 20 to 18. This, combined with our bottom-up FY16 EPS (earnings per share) estimate of Rs 1,550 (nine per cent year-on-year growth on the actual FY15 EPS of Rs 1,430), leads us to our new end-FY16 Sensex target, implying a seven per cent upside," said the brokerage.

However, the good news is that foreign brokerage Goldman Sachs has retained its 'overweight' call on India, with a 12-month Nifty target of 9,300. Citi is bullish as well and expects the Sensex to touch 32,200 by December end.