Nomura upgrades India to 'overweight', BNP sees Sensex at 40,500 by Dec

Morgan Stanley said India's underperformance year-to-date to emerging markets may reverse in the weeks ahead

The measures announced by Finance Minister Nirmala Sitharaman to boost the economy is a welcome step and will help improve market sentiment in weeks to come with Sensex climbing 40,000 by end of this year, global brokerages said.

Japanese brokerage house Nomura upgraded its India rating to overweight, saying it is the time to raise allocation on positive local developments amid rising global uncertainty.
According to the research house, reform measures and sectoral incentives could provide a much-needed booster shot for the economy. "We expect the recovery in economic growth to 6.6 percent in the second half of FY20 from 5.8 percent in the first half," it said.
Indian market with less than average leverage to global growth could do relatively better, it feels.

Having a Sensex target for December 2019 at 40,500, BNP Paribas said the government's flexibility and focus on ensuring confidence-boosting measures is a short-term positive, but the escalation in US-China trade tensions have turned more unfavourable for India.

To bring the economy on track, Finance Minister Nirmala Sitharaman, on August 23, announced several measures for various sectors like autos, MSMEs, PSU banks, housing finance, etc.

Also, the government removed additional surcharge on long and short term capital gains of foreign portfolio investors, which had affected market sentiment.

Global economic environment has been weak. As a result, the Reserve Bank of India lowered its FY20 growth forecast to 6.9 percent from 7 percent.

"Government has given a clear signal that it acknowledges an economic slowdown. Measures will improve investor sentiment and drive at least a short-term bounce," CLSA said.
Morgan Stanley said India's underperformance year-to-date to emerging markets may reverse in the weeks ahead.

"Key risk is that our view on global equities is cautious," it said.

From a portfolio perspective, the global brokerage likes financials, consumer discretionary and industrials while Nomura's top picks are ICICI Bank, ICICI Prudential Life, L&T, SBI and Container Corporation.

Jefferies said higher depreciation benefit is likely the most material but even this is at best a 5 percent benefit. It was more of a sentiment positive than a material boost to auto demand, but no GST rate cut is a disappointment particularly for 2-wheelers, it added.