UBS sees Nifty at 8,200 by end-2016

Global financial services major UBS on Tuesday said it was “overweight” on India but sees limited room for a re-rating, and forecast an end-2016 Nifty target of 8,200. “We see limited room for a re-rating and forecast an end-2016 Nifty target of 8,200 based on a 15x one-year forward PE multiple,” it said in a research note, adding “our Global Emerging Markets/Asia Pacific strategists remain overweight on India.” According to the Swiss firm, there were big earning downgrades in 2015 and more are likely this year. “Consensus FY16/FY17/FY18 forecasts of 10 per cent/20 per cent/18 per cent earnings growth still appear optimistic,” it said, adding cuts in 2016 might remain significant at around eight per cent. On prices, it said the country’s disinflationary process was likely to continue largely aided by political commitment, the Reserve Bank of India policy, below-trend growth and balance sheet repair.

It expects Consumer Price Index (CPI)-based inflation in the financial year 2016-17 at around 4.6 per cent.

During 2015, the CPI-based inflation remained well under control hovering in the range of 3.6-5.4 per cent, while industry chambers and some other experts are hopeful that it would keep below six per cent in the new year — a target set by RBI.    

It further said the recovery process for the Indian economy would be gradual and growth numbers would be below potential.

"While lower RBI policy rates should boost fixed investment, balance sheet repair and a difficult external environment should keep the recovery gradual and GDP growth below-potential," it added.

It expects fiscal year 2016-17 growth at around 7.6 per cent and financial year 2017-18 at 7.8 per cent.

Meanwhile, the government recently lowered its economic growth forecast for 2015-16 to 7-7.5 per cent from 8.1-8.5 per cent.