An employee is reflected in a glass panel as he monitors securities on a computer monitor at a brokerage firm in Mumbai. Photographer: Dhiraj Singh/Bloomberg

As The Markets Are In Turmoil, Here’s What Brokerages Predict

The Indian markets erased the year’s gains as concerns around the U.S.-China trade war and rising interest rates added to the rout caused by rising fuel prices and a weaker rupee.

The S&P BSE Sensex fell 2.2 percent or 760 points to 34,001 on Thursday, and the NSE Nifty 50 Index dropped 2.2 percent or 225 points to 10,235. Sensex wiped out all its 2018 gains as it fell 0.16 percent year-to-date. The NSE Nifty has already declined 3 percent year-to-date.

In dollar terms, both the indices are down by nearly 15 percent. Even the selloff in mid and small has been intense. The Nifty Midcap 100 Index and Nifty Smallcap 100 Index have fallen 23 percent and 35 percent, respectively, so far this year.

Here’s what top brokerages are saying about the market fall and the outlook going ahead.

CLSA

  • Doesn’t believe the worst is over for the Indian markets, which haven’t fully absorbed rising interest rates, depreciating and political uncertainties.
  • Emerging market valuations are 5-15 percent below their respective 10-year historical averages, but India is the only major emerging market that trades at a premium to the average.
  • Overweight on exporters like IT and pharma as well as Reliance Industries Ltd.
  • Expects NBFCs to face funding pressure and are underweight on the financial sector.

BofA ML

  • Sees further downside to Indian indices, sticking to its December target for the BSE S&P Sensex at 32,000.
  • Oil is the single variable that matters and has a bullish undertone due to the effectiveness of the upcoming Iranian sanctions. Its base case for oil is $95 per barrel by June 2019.
  • NBFCs will have the highest beta followed by banks in the recent volatility.

Credit Suisse

  • Rupee’s weakness against the dollar to continue.
  • Companies with high profit-to-equity ratio in the discretionary NBFC and staples space have underperformed due to derating, according to the brokerage’s India Equity Strategist Neelkanth Mishra.
  • Mishra said that a sharp underperformance, as seen in the last two months, will be followed by a “bounce-back”. He suggested that the opportunity must be used to trim positions in discretionary, staples and NBFC spaces.

Deutsche Bank

  • Industrials, IT services, healthcare and utilities are inexpensive sectors on relative valuations.
  • Has concerns over valuations and not earnings growth momentum.
  • TCS Ltd., Infosys Technologies Ltd., HCL Tech Ltd., L&T Ltd., Ashok Leyland Ltd., BHEL, NTPC Ltd., Petronet LNG and GSPL are stocks in its model portfolio.

Morgan Stanley

  • Has a target of 42,000 for the S&P BSE Sensex by Sept. 2019, with bull case of up to 47,000 and bear case of 33,000.
  • Ridham Desai, managing director of Morgan Stanley India, said sentiment indicators are in the buy zone, and this isn’t a moment to be fearful of being wrong.
  • Mixed state election results, rise in oil prices past $90-95 per barrel and deeper investor aversion to emerging markets could trigger further downside to the Sensex to below its bear case target.
  • Brokerage likes banks, discretionary consumption and industrials on large and mid-cap end.

Macquarie

  • Recommending its clients to go for domestic cyclicals over defensive stocks, believes large-caps will perform well.
  • Recently upped its Nifty March 2019 target to 12,000 due to bullish view on RIL and the IT sector.
  • Midcaps are vulnerable from valuation and flows.
  • It downgraded private banks and metals to neutral from positive stance in its latest report. Upgraded auto sector to positive.

Citi

  • Citi’s internal indicators indicates a near 10 percent return over the next year and continue to maintain a defensive and selective stance, given the tough macros.
  • Cautious on the markets and keeps a March 19 Sensex target of 37,300 for now.
  • Recommends Ambuja Cement Ltd., Coal India Ltd., HDFC Ltd., ICICI Bank Ltd., ITC Ltd., Maruti Suzuki India Ltd., NTPC Ltd. and Petronet LNG Ltd. as stocks with decent risk reward.

HSBC

  • Recommends a bottom-up stock picking approach. Cites rupee, crude, vulnerable external finances, global liquidity, domestic credit crunch and political uncertainty as key reasons.
  • Underweight on the Indian equity market in a regional context.
  • Havells India Ltd., IndusInd Bank Ltd., Titan Company Ltd., Hero Motocorp Ltd., and SBI Life Insurance Company Ltd. are some stocks that it recommends to clients.

Nomura

  • Sees the Nifty at 11,270 in one year.
  • Macro challenges weigh on economic growth and earnings in the near term as high oil prices and slowdown in NBFCs present risk.
  • Market valuations are still not attractive enough and further 5-10% downside in the near term cannot be ruled out.
  • Underweight on consumer staples, cement, power, telecom and financials while having overweight stance on autos, infrastructure and healthcare.