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Bank Of America Merrill Lynch Pegs Sensex Target At 29,000 For 2017

The brokerage expects 12-14 percent earnings growth for next two financial years.



Bystanders react to an electronic screen displaying stock quotes outside of the Bombay Stock Exchange in Mumbai, India (Photographer: Prashanth Vishwanathan/Bloomberg News)
Bystanders react to an electronic screen displaying stock quotes outside of the Bombay Stock Exchange in Mumbai, India (Photographer: Prashanth Vishwanathan/Bloomberg News)

Pegging the Sensex target at 29,000 for December-end 2017, global financial services major Bank of America Merrill Lynch (BofA ML) said Indian equity markets should deliver positive returns in the year despite uncertainties created by demonetisation and GST. BofA ML also expects double-digit earnings growth of 12-14 percent for financial year 2017-18 as well as 2018-19, underpinned by financials which are expected to lower provisions going forward.

"Despite uncertainties created by demonetisation/GST, we think Indian equities should deliver positive returns in 2017," BofA ML said in a report.

However, according to the report, the worst effects due to the physical lack of cash seem largely over in urban areas and should recede from rural regions with time. Besides, a recent survey by BofA ML on 2,000 individuals found clear indications of recovery in consumer activity.

"Many have put discretionary spends on hold for now but expect (hope) their consumption/incomes will 'normalise' in 6 months," BofA ML said, adding that several people surveyed are now looking to borrow more and go with electronic payment.

Interestingly, the survey found that only 33 percent of the respondents saw significant initial impact to consumption, while 65 percent have recovered loss in incomes.

Forty-four percent said their consumption is back to normal and over 56 percent are looking to increase financing. About 63 percent of potential home buyers have stepped back, but 89 percent will review inside six months.

"As many as 62 percent of businesses have seen up to 30 percent fall in sales (20 percent report full recovery; 15 percent suggest no recovery)," the report said.

Lack of cash (65 percent) seemed to be the biggest impediment to business, while 56 percent hope to increase usage of electronic payments, it added.

Further, as many as 64 percent of the respondents have curtailed vacations, and another 64 percent have pushed out home renovation by more than three months.

Demonetisation of Rs 1,000 and Rs 500 notes since November 9, 2016, has adversely impacted economic activity in the country, creating uncertainties going forward.

On the other hand, implementation of goods and services tax (GST) by April 1 is ruled out. Experts feel GST will be rolled out in July. GST will replace a jumble of levies to create one of the world's biggest single market. A single tax will make it easier to do business in the world's seventh-largest economy as also help combat evasion, boost revenue for the government.