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Last Updated : Oct 04, 2019 11:48 AM IST | Source:

UBS sees Nifty at 12,300 by June 2020; overweight on financials, realty and oil & gas

UBS sees the Nifty trading at 12,300 by June 2020 in best case scenario, which implies a gain of over 8 percent from October 3 close of 11,314.

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The recent reform measures by the government are steps in the right direction, but fiscal worries are likely to cap the upside. Global investment bank UBS sees the Nifty trading at 12,300 by June 2020 in its best case scenario, which implies a gain of more than 8 percent from October 3 close of 11,314.

In the upside scenario, the Nifty could well scale 13,000 levels and hit 13,300, while on the downside, 10,300 is the likely target.

From a sector perspective, UBS is overweight on both the state-owned enterprises (SOE) heavy sectors, oil and gas and power.

The stance on oil and gas and power utilities is also based on key stocks within these sectors being overweights. For instance, most of oil marketing companies and NTPC among power utilities are overweight.

UBS also has an OW stance on financials but not on SOE banks. The markets may welcome privatisation in SOE banks but visibility of that seems missing for now.

UBS sectors

The global investment bank is of the view that the government's steep $15bn (5% of its total revenues) disinvestment target in FY20 may need to be higher given the recent cut in the corporate tax rate and policymakers' focus on macro stability.

After being hit hard by the NPL cycle, the recent consolidation of SOE banks may imply that policymakers are now looking at their growth as critical for reviving the credit cycle and thus, overall economic growth.

“This may have put the option of privatisation on the backburner; a large employee base could also make it difficult. This may re-emerge at some stage, less so for capital raising and more to support economic growth vis-à-vis growth/credit capital,” said the note.

The index (NSE PSE index) of SOE companies is trading near absolute and relative historical lows. It could rerate if there is progress on privatisation.

As per media reports, the government is also exploring other options, such as privatisation. As highlighted in the finance minister’ budget speech, privatisation would remain a priority for the government.

Realisations by way of privatisation are potentially more significant than current market valuations. “As per the report submitted by the Committee on Public Undertakings in the Lok Sabha in 2018, 24 SOEs or their subsidiaries were identified for 'strategic disinvestment' or privatisation. Similarly, 33 loss-making SOEs were identified for closure/further disinvestment,” said the UBS note.

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First Published on Oct 4, 2019 11:48 am
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