Mumbai, December 20: Leading Brokerages are upbeat on the benchmark indices for calendar 2020 beginning next month. Kotak Securities has set a one year target of 13,400 points for Nifty-50, of the National Stock Exchange (NSE). The similar target for the BSE Sensex would work to 45,500 points by the end of December 2020, the brokerage revealed in a select media briefing.
It said, “Incremental earnings growth of Nifty-50 is expected to be skewed and mainly led by the banking sector. Nifty-50 is currently trading at a multiple of 18.6 on one year forward price earning (PE) basis as compared to its 10-year average of 15.5 times (x). On valuations, it is closer to its previous peaks of ~19x. We have valued Nifty-50 at 1 Standard deviation above its 10-year average Forward PE which works to 17.5x. In Dec’20 we expect the one year forward EPS of Nifty-50 to be ~Rs.767 which valued at 17.5x gives us one-year Nifty-50 target of 13,400”.
Jaideep Hansraj, MD and CEO, Kotak Securities, said, “Market mood is more positive than what is reflected in the real economy. This is mainly because of improvement in earnings led by a reduction in corporate tax rate and strong Foreign Portfolio Investors (FPIs) and systematic investment plan (SIP) flows.”
Post the Q2FY20 print we have cut our FY20 GDP growth estimates to 4.7 per cent. The disconnect between equity markets and economy could stay for some time as high-frequency indicators are not showing any signs of improvement whereas markets could remain at elevated levels on hopes of certain sops likely to come in the forthcoming Union Budget, he explained.
This year’s monsoon rainfall has been the highest in the last 25 years paving way for a better Rabi output and higher income in the hands of the rural population. Better farm income coupled with series of measures taken by the government and RBI in this calendar year could help improve demand conditions in the calendar year 2020, Hansraj said.
The low base effect of this year could also help companies report decent revenue and operating profit growth in FY21. We expect Nifty-50 earnings to grow by 10 per cent in FY20 and 27 per cent in FY21. For the next three years, we are building in earnings CAGR of 18 per cent for Nifty-50 as compared to the previous three years CAGR of 8 per cent, the presentation prepared by the brokerage said.