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Last Updated : Sep 16, 2019 12:57 PM IST | Source:

UBS remains underweight on small & midcaps, sees Nifty at 13,200 in upside scenario

For markets to do well, more aggressive steps and reforms are needed, says UBS

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The recent slowdown and policy responses suggest that negative growth surprises may be nearing an end but the sustainability will depend on further action by the government which is still unclear, UBS has said in a report.

The measures taken by the government might not get translate into healthy earnings, which could have pushed markets higher, the global investment bank said, calling for reforms and more aggressive steps.

The Nifty is down by about 9 percent from its record high seen in June as growth slows and India Inc’s earnings remain muted.


“We update our top-down STEP model for Nifty earnings; incorporating recent negative growth surprises and GDP growth revision (link). Our Nifty target for June 2020 is 11,100 with upside/downside scenarios of 13,200/9,200, implying the risk-reward is not attractive for the market,” said the UBS report.

The bank foresees a narrow market and remains underweight on small-mid caps, industrials and autos.

UBS forecast for earnings growth is at 14 percent on a year on year basis for both FY20 and FY21, driven largely by financials.

The Nifty's one-year forward PE multiple has de-rated to 16.9x, above its five-year average but no longer above +1 SD.

The Nifty target for June 2020 is at 11,100, based on 17.5x one-year forward PE multiple. The downside scenario of 9,200 for the Nifty by June 2020 is based on 15.5x one-year forward PE multiple, in line with the 10-year historical average.

The upside scenario of 13,200 for the index by June 2020 is based on 19x one-year forward PE multiple, in line with peak multiples seen over the past three to five years.

"This scenario is premised on a much sharper and stronger earnings recovery/growth cycle. This would require more aggressive policy action, including on rate cuts, as well as a reforms agenda which is frontloaded," added the note.

In terms of sectors, UBS adds small finance banks as overweight. The sector should continue to grow faster than peers due to market share gain from NBFCs and presence in under-penetrated segments, it said.

Apart from small finance banks, UBS is overweight on private banks, property, oil and gas, consumer discretionary, power utilities and life insurance.

It is neutral on consumer staples, SOE banks, metals and mining, pharma, telecom and IT services and underweight on autos, cement, infra, small and midcaps and NBFCs.

Disclaimer: The views and investment tips expressed by investment expert on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

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First Published on Sep 16, 2019 12:21 pm
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