American
brokerage Bank of America-Merrill Lynch (BofA-ML) today retained its
Sensex target at 33,000 by December, but said in the medium term, the
Dalal Street will see more volatility. "We continue to maintain
our December Sensex target of 33,000 points. But near-term the
markets will remain subdued and range bound with a negative bias, as
quarterly earnings are low and more earnings downgrades are likely
over the medium term," BofA-ML Analyst Jyotivardhan Jaipuria
said in note.
"Also,
the India versus GEM premium is near all-time at 35 per cent the GE
averages," Jaipuria said. The markets are likely to witness
another quarter of weak growth in the ongoing earnings season.
Mirroring the previous quarter when aggregate Sensex profit fell 1
per cent year-on, profit growth is once again going to be subdued at
1 per cent, he said, adding he sees more earnings downgrades for the
next few months before stabilising and earnings upgrades may not
start until next year.
On
a top-down basis, we expect 2015-16 consensus growth estimates of 18
per cent to get downgraded to 12-13 per cent growth, he added.
However, he noted that FIIs have the all-time high overweight on the
domestic market. This is on the back of nine consecutive quarters of
positive FII inflows. Strong FII inflows have resulted in all-time
high foreign ownership for the markets at about 28 per cent. While
GEM funds have a 12.8 per cent weight on the country against the
index weight of 7.7 per cent, which is a massive 510 bps OW.
Noting
that the Sensex has rich valuations, he said post-2014 polls, the
markets re-rated and have been trading at 16 times one-year forward
PE. And despite the recent bloodbath, the valuations are still a 10
per cent premium to long term averages. Also, in the GEM context it
is currently at a 35 per cent premium to GEM, he said.
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