Why BNP Paribas expects markets to soar despite poor economic indicators

Brokerage firm BNP Paribas believes that Indian stock market indices are likely to head higher despite recent new highs, coming on the back of lower growth and other poor economic indicators. It believes that the source of a resilient market may lie in factors outside the domestic issues that may be dominating the headlines.

BNP Paribas has set a target of 44,500 for the S&P BSE Sensex, a bellwether index. This is said to be driven by easier liquidity conditions across the globe. This, in turn, would push higher risk assets as investors seek higher yields, a positive for emerging market countries like India. This would help the currencies of such countries do well. Asian markets have tended to move in line with their currencies, according to BNP Paribas. This will also apply to India, they believe.

"We think even though India's earning 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 smallcap areas," said a January 2020 'Inside India'  report authored by Abhiram Eleswarapu, head of India equity research at BNP Paribas Securities India.

The firm points out that consensus earnings growth for benchmark Indian companies is currently 11 per cent for the financial year ending March 2020 (FY20) for companies with positive earnings growth. It is 19 per cent for FY21.

One could see some pent up investment materialising during 2020 as trade tensions ease with the latest US-China deal talks almost done. However, prospects for another phase of agreements on trade between the two countries after the current phase remains slightly cloudy, according to BNP Paribas .

It expects more monetary and fiscal easing from the US, Europe and most of Asia.

Betting up upside
 

-Sensex target of 44,500

-Betting on more easing by US central bank

-Similar easing in other key countries

-Boost for emerging market assets, currencies

-Asian equities have tracked currencies