Nifty nears 9,000: Tempted to cash out? Experts say stay put

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March 02, 2017 2:47 PM

“Stay invested”: This seems to be the consensus as analysts and brokers foresee a further strong upside from here in the benchmark indices, on the back of attractive comparative valuations and strong fundamentals.

Brokerage firm Morgan Stanley raised its base case target on Sensex to 33,000 points by the end of the current year 2017, up 10% from its previous target of 30,000 points.

As the Indian stock markets eye new highs, cheering encouraging corporate earnings and strong third quarter GDP data, is this the right time to book profits, or should investors hold on for further gains?

“Stay invested”: This seems to be the consensus as analysts and brokers foresee a further strong upside from here in the benchmark indices, on the back of attractive comparative valuations and strong fundamentals.

Indian stock markets saw a strong start to Thursday’s trade, with BSE Sensex opening comfortably above 29,000 points and NSE Nifty opening just shy of 9,000 points, extending yesterday’s stellar gains after the encouraging fiscal third quarter GDP growth estimates showed that demonetisation did not have as much impact on the economy as was expected. Yesterday, Sensex surged 0.84%, or 241.49 points at close after touching a high of 29,029.17 points. Nifty had closed up 0.75% or 66.20 points.

Corporate M&A, earnings

Today, brokerage firm Morgan Stanley raised its base case target on Sensex to 33,000 points by the end of the current year 2017, up 10% from its previous target of 30,000 points. “We have been arguing for an M&A cycle over the past few months and lift our Sensex target by 10% to reflect the same,” Morgan Stanley analysts Ridham Desai and Sheela Rath said in a note.

The revised target implies an upside of about 15% from the current levels. The brokerage, however, kept its bull case and bear case scenario targets unchanged at 39,000 points and 24,000 points, respectively. “Our bull case for the Sensex could come into play by 2018,” Morgan Stanley note said.

Further, Morgan Stanley predicts stronger growth in corporate earnings going forward. “We lift our earnings growth estimates for FY19 from 15 percent to 24 percent,” it said in the note.

Valuation

Interestingly, while several market participants see the current valuations as being on a higher side, Morgan Stanley said it’s reasonable in view of historical levels, and when pitted against other emerging markets and bonds. “On our December 2017 target the BSE Sensex would trade at 16 times one-year forward earnings, similar to its historical average. The bull case multiple would be 17 times,” Morgan Stanley said.

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Earlier last month, Edelweiss Broking too had said that it sees Nifty rising to 9,500-9,700 points by the end of the current year 2017, as the benchmark Indian index regains its premium over other emerging markets, and falling bond yields propel equity markets further. India’s premium over emerging markets is at the lower end. Edelweiss said in its India Strategy research note. It is witnessing a revival and signals an upside from here, it added.

“Nifty’s forward (P/B) price-to-book-value premium to the MSCI Emerging Market Index is currently near its four-year average suggesting that India should most likely outperform its other emerging market peers in the near future,” Edelweiss said.

Another brokerage Prabhudas Lilladher too, seems unfazed by the valuation, with its Head of Institutional Equities R Sreesankar expecting a rally of about 400 points on the Sensex from here by the end of the year.

Domestic funding

R Sreesankar told BTVi that the DIIs (domestic institutional investors) are continuing to see inflows into the markets, which is offsetting the selling by FIs (foreign investors). The sentiment is being fueled by the fundamentals at play, with the strong corporate and macroeconomic performance in the third quarter, he said.

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“Whole market had expected demonetisation to have big impact on Indian economy,” Sreesankar said to BTVi, adding that the third quarter GDP numbers are much positive than the analysts had predicted. Another factor is Q3 results, which were again, much better than analyst expectations, he said.

Large cap scrips in focus

Another veteran investor, Deven Choksey of K R Choksey Investment Managers, expects more near term gains, with the markets crossing various levels and the Nifty hitting 9,200 points in March itself. “9,000 on Nifty is a formality,” Choksey said to BTVi in an interview. He expects similar healthy inflow of funds into the markets in March, as in February. With the Last month having around Rs 10,000 crore of equity inflow, this month too can’t be very different, he said.

“It is likely to be equally good in terms of money inflow, and for good reason,” Choksey said, adding that the market is now buying into some large cap companies, which are available at neglected valuations. “These large cap companies are essentially index stocks, and as a result of which we finding a higher amount of thrust coming into them,” he said.

“Certainly, in the month of March we should see Nifty trading in the range of 8,700-9,200,” Choksey said.

 

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