BoFA-ML estimates Sensex target for 2017 at 29,000

It says that Indian equity markets should deliver positive returns in the year despite uncertainties

Pegging the Sensex target at 29,000 for December-end 2017, global financial services major Bank of America Merrill Lynch (BofA-ML) said Indian equity markets should deliver positive returns in the year despite uncertainties created by demonetisation and goods and services (GST).

BofA-ML also estimates a double-digit growth rate at 12-14 per cent for earnings in the next fiscal (2017-18) as well as 2018-19, underpinned by financials which are expected to lower provisions going forward.

"Despite uncertainties created by demonetisation/GST, we think Indian equities should deliver positive returns in 2017 (Sensex December 17 at 29,000)," BofA-ML said in a report.

However, according to the report, the worst effects due to the physical lack of cash seem largely over in urban areas and should recede from rural regions with time.

Besides, a recent survey by BofA-ML on 2,000 individuals found clear indications of recovery in consumer activity.

"Many have put discretionary spends on hold for now but expect (hope) their consumption/incomes will 'normalise' in 6 months," BofA-ML said, adding that several people surveyed are now looking to borrow more and go with electronic payment.

Interestingly, the survey found that only 33 per cent of the respondents saw the significant initial impact on consumption, while a whopping 65 per cent has recovered the loss in incomes.

Moreover, 44 per cent said their consumption is back to normal and over 56 per cent are looking to increase financing.

About 63 per cent of potential home buyers have stepped back, but 89 per cent will review inside six months.

"As many as 62 per cent of businesses have seen up to 30 per cent fall in sales (20 per cent report full recovery; 15 per cent suggest no recovery)," the report said.

Lack of cash (65 per cent) seemed to be the biggest impediment to business, while 56 per cent hopes to increase usage of electronic payments, it added.

Further, as many as 64 per cent of the respondents have curtailed vacations, and another 64 per cent have pushed out home renovation by more than three months.

Demonetisation of Rs 1,000 and Rs 500 notes since November 9, 2016, has adversely impacted economic activity in the country, creating uncertainties going forward.

On the other hand, implementation of GST by April 1 is ruled out. Experts feel GST will be rolled out in July.

GST will replace a jumble of levies to create one of the world's biggest single market. A single tax will make it easier to do business in the world's seventh-largest economy as also help combat evasion, boost revenue for the government.