Sensex to hit 50,500 by end of 2021, says BNP Paribas; adds ONGC, Marico to Asia portfolio

Benchmark Indian equity index BSE Sensex could hit 50,500 points by the end of the next calendar year 2021, according to global investment bank BNP Paribas. In its Asia Strategy report for 2021, BNP Paribas said that it is overweight on India among Asian countries, for the availability of high quality market leaders. Currently the S&P BSE Sensex trades at 46,253; BNP Paribas’ target implies a 9.18% upside in the coming year. Sensex has so far gained over 11% during the current year despite the sharp fall it witnessed in March.

Big getting bigger in India

The French international bank said that India continues to benefit from two factors — the big getting bigger, and availability of quality stocks in relative abundance compared with its Asian peers. “Consequent to continuous steps taken to formalize the economy over the past few years, we have seen large frontline companies in most sectors gain market share — and that has come as a boost to the equity market,” the report said. BNP Paribas said that although only 9% of the companies that it covers are from India, the ‘ROE Winners’ it identified had 30% Indian companies.

The report adds that the Information Technology sector has seen the strongest earnings upgrades. With commentaries from global IT service firms and data on deal wins being more optimistic than the revenue outlooks, BNP Paribas believes the earning upgrades will continue. In terms of stocks, BNP Paribas has included ONGC and Marico to its model portfolio and excluded Britannia from the same.

Long range economic plans

BNP Paribas said that India is still recovering from the coronavirus outbreak with the efforts visible in some segments of the economy — like rural incomes, automobile sales and non-food credit but is absent from urban consumption or banks’ asset quality. “A common thread running between China and India is the focus on some long range economic plans — targeted at boosting consumption in China and on supporting investments in India,” the report said.

India’s recent policy measures such as the agriculture reforms, production-linked incentives, and labour laws are being seen as a positive by the investment bank. “The impact would be felt over the long term, we believe, though the previous experience of PLIs in smartphone manufacturing did bear fruit pretty rapidly,” the report said.

Risks

In terms of risk, the investment bank flags sagging urban incomes, persistent high inflation (though base effects and moderating food prices as concerns. “In the wake of the Covid-related disruptions, urban employment destruction and urban income compression have clearly been much more pronounced than rural incomes. The consequent decline in urban propensity to consume non-essentials is not surprising but worrying nonetheless,” it said.