Home / Market / Stock-market-news /  UBS bullish on Indian equities, sets end-2015 Nifty target at 9,600

Mumbai: UBS Securities India Pvt. Ltd remains bullish on Indian equities next year, the local unit of Swiss lender UBS AG said on Tuesday, citing expectations of an economic recovery and healthier corporate earnings.

The benchmark Nifty index on the National Stock Exchange (NSE) will likely touch 9,600 points by the end of 2015, it said.

“The economic growth recovery under way will likely sustain current valuations, especially as it starts manifesting in both macro and micro data points," UBS analysts Gautam Chhaochharia and Sanjena Dadawala said in a note to clients. “Unlike the last three years, we expect consensus earnings growth estimates of 15%+ for FY16 and FY17 to be met, and ultimately, it is earnings momentum that drives markets."

UBS analysts expect a gradual recovery in economic expansion as the government’s policy stance—both fiscal and monetary—is still in consolidation mode, and said economic growth could accelerate to 6.5% in the year to March 2017, driven by moderating inflation, lower nominal interest rates, policy support and repaired balance sheets. The investment cycle takes time to recover and a significant impact may only be apparent 2016-17 onwards, they said.

Based on their 15% to 18% growth forecasts for fiscal years 2015-16 and 2016-17, respectively, and likely premium valuations of around 16 times one-year estimated price-to-earnings ratio, the analysts arrived at a Nifty target of 9,600 points by the end of 2015.

Retail inflation is expected to moderate to 5.7% in January 2016, lower than the Reserve Bank of India’s goal of 6%, the analysts predicted, projecting 10-year Indian government bond yields of 6.5% by March 2016, down from 8.2% currently. Prices and yields of bonds move in opposite directions.

The UBS analysts expect monetary policy to lag inflationary moderation and the Indian central bank to keep policies relatively tight until 2015-16, and said the 10-year and short-term market interest rates should react much earlier and more sharply.

They also expect more policy action in 2015, including further progress on Aadhaar, or unique identification numbers, goods and services tax (GST) reform and dedicated freight and industrial corridors.

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