Mumbai: Swiss brokerage UBS on Tuesday said it is bullish on the Indian stock market and sees a massive upside to earnings, driven by better growth numbers, which will push the NSE benchmark index Nifty to 9,600 by next December.
"We remain bullish on the equities in 2015. The growth recovery underway will likely sustain current valuations, especially as it starts manifesting in both macro and micro data points.
"Based on our top-down 15-18 percent earnings forecasts for FY16 and FY17 and likely premium valuations of around 16 times one-year forward PE, our Nifty target for end-2015 is 9,600 points," the brokerage said in a report.
The 50-share index today ended at a fresh record high of 8,362.65 points.
UBS said unlike the last three years, it expects consensus earnings growth estimates of over 15 percent for FY16 and FY17.
However, on macro data, UBS expects only a gradual recovery of 5.5 percent (GDP growth) for this fiscal and 5.8 percent for FY16 as both the monetary and fiscal policy stances are still in consolidation mode.
Growth could accelerate to 6.5 percent in FY17, driven by inflation moderation, lower nominal interest rates, policy support and balance-sheet repair. A massive uptick in the investment cycle would come only by FY17, UBS said.
On inflation, the broking firm sees the price index moderating to 5.7 percent in January next but does not expect the RBI to relax its anti-inflationary stance this fiscal.
Explaining its optimism on growth front, the report said the Modi administration has been enabling the "ease of doing business" through labour law amendments in addition to the push to attract investments.
"We expect more policy action next year, including further progress on the country's 'three arrows' - the Aadhaar cards, GST and dedicated freight/industrial corridors. Some reforms on cooking gas/urea, state-owned banks, coal/power, and land are also likely."
On 30 percent fall in global crude prices since this fiscal, the report said Brent crude sustaining at USD 85 a barrel could mean a "USD 20 billion bounty for India, or 1 percent of GDP, all other things being equal."
On sector positioning and top picks, UBS said it remains overweight on banks, oil & gas, power, telecom and media; underweight on auto firms, consumer staples IT; neutral on car companies, cement, consumer discretionary, pharma, small and mid-caps.
