After a blockbuster 2017, all eyes are on the year 2018 which promises to be eventful and another year of record highs for equity markets.
The Nifty50 rallied from 8,185 levels recorded on 30 December 2016 to 10,493 on 22nd December 2017, a gain of almost 2,300 points or 28 percent.
But, the rally is not over yet as most experts believe that Nifty is likely to scale Mount 11K in the year 2018, according to a poll conducted by Moneycontrol.com.
As many as 46 percent of the poll respondents feel that the Nifty50 is likely to scale above 11000 by 2018 December-end, while the rest 40 percent feel that it would hover in the range of 10,000 to 11,000.
One participant feels that the Nifty has the potential to climb Mount 12K or remain in the range of 11500-12000. Not everyone is optimistic about the year 2018, one of the analysts polled by Moneycontrol said that index could well trade below 10,000 towards the end of 2018.
The rally in the year 2017 has been largely driven by expansion in P/E multiples with earnings growth faltering due to the adverse impact of demonetistion and implementation of GST.
“Going ahead, we see limited scope for multiple expansion from here and the baton to take markets ahead would have to be passed on to earnings growth in 2018,” Gaurav Dua, Head of Research at Sharekhan told Moneycontrol.
“Consequently, we expect the benchmark indices to largely move in line with the expected growth of 12-15 percent in earnings of index companies in the next fiscal,” he said.
As many as 62 percent of the poll respondents feel that the S&P BSE Sensex is on track to stay above Mount 34000 throughout the year 2018 and could even touch 37000-38000. 15 percent of the respondents feel that it will hover in the range of 33000-33500 while the rest 8 percent feel that it will move in the range of 33500-34000.
Global brokerages such as BofAML, Morgan Stanley, Credit Suisse, and BNP Paribas see Indian market to touch fresh record highs in the next calendar year.
BNP Paribas has the most aggressive target on Sensex among all the other global investment banks’ which have come out with their strategy reports.
BNP Paribas maintains its overweight stance on Indian markets and sees the S&P BSE Sensex heading towards 37,500, which translates into an upside of nearly 10 percent from current levels.
One big worry for the analyst’ community going forward is growth in earnings for India Inc. The September quarter results were largely in-line with estimates which is a good sign but December quarter results will dictate the trend for markets in the first month of 2018.
Most analyst’ polled by Moneycontrol feel that earnings recovery is in place as 60 percent of the respondents feel that improvement in the corporate earnings growth should start happening from December quarter while the rest 40 percent are not that convinced.
Earnings recovery is one of the crucial factors which is likely to drive the trend for the markets. Even though some analyst feel that a correction could come in if earnings fail to bounce back while others feel that a double-digit recovery is in sight.
“In the long-term, the equity market is a mirror of earnings growth. During last 7-8 years, corporate earnings growth was 7-8 percent CAGR and Sensex delivered similar returns,” Rajesh Kothari - Founder and Managing Director of AlfAccurate Advisors told Moneycontrol.
“During next 3 years, as earnings growth improves, the market has a potential to deliver double-digit returns - compared to fixed income which gives 4-5% net of tax returns,” he said.
Commenting on the upcoming Budget, most analyst preferred to stay away but the general consensus is that nobody wants the government to present a populist Budget 2018.
The work on Modi Sarkar's last full Budget has already begun and after a close encounter in the Gujarat Assembly elections, the talk of populist Budget has gathered steam.
As many as 53 percent of the analysts’ preferred not to comment on the Budget while 27 percent feel that it will be a populist one and the rest 20 percent want to go with a reformist Budget.
“We do not believe that the government will present a populist budget. This government has been prudent about fiscal spend so far and we believe that the same will continue,” Prasun Gajri, Chief Investment Officer, HDFC Life told Moneycontrol.
“However, it is possible that the pace of consolidation may differ from what was presented earlier. This will largely be led by bank recapitalization and the teething issues related to GST implementation,” he said.
One big worry which could become a concern for the Indian market is rising crude oil prices. Right now, the Brent crude is hovering near USD 64, up 12 percent approx. on a year-to-date (YTD) basis.
The price per barrel of Brent crude crossed USD 60 mark this month, against USD 40 a year ago but it is still well below the USD 115 peak reached in 2011. A high crude oil price increases the risk of higher current account deficit.
Almost 80 percent of the respondents are of the view that if the crude inches towards USD 65-70/bbl if will hamper bull run for Indian equity markets as now the Street might have to deal with other macro challenges.
Poll Participants:
Jimeet Modi, Founder & CEO, SAMCO Securities
AK Prabhakar, HoR, IDBI Capital
Dinesh Rohira, Founder & CEO, 5nance.com
Vijay Singhania, founder-director, Trade Smart Online
Nitasha Shankar, Sr. Vice President and Head of Research, YES Securities (I) Ltd.
Nikhil Kamath, Co-Founder & Head of Trading, Zerodha
J.K.Jain, Equity research head at Karvy Stock Broking
GEPL Capital
Pushkaraj Sham Kanitkar, AVP - Technical Research at GEPL Capital
Vinod Nair, Head Of Research at Geojit Financial Services
Rakesh Tarway, Head of research, Reliance Securities
Shrikant Akolkar, Sr. Equity Research Analyst, Angel Broking Pvt Ltd.
Ajay Bodke, CEO & Chief Portfolio Manager PMS Prabhudas Lilladhar
Piyush Sharma, Co-founder and Portfolio Manager, Metis Capital Management Ltd
Abhimanyu Sofat, VP, Research, IIFL
Deepak Jasani, Head - retail research, HDFC Securities.
Quantum AMC
SSJ Finance & Securities
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