French brokerage BNP Paribas on Thursday said it expects a 9 per cent rise in the Indian equity benchmark Sensex amid concerns on the broader economy.
It expects the 30-share BSE Sensex to be 44,500 points by the end of the year.
Manishi Raychaudhuri, its Singapore-based head of Asia Pacific Equity, said he has not seen such a sharp correction in growth momentum like in the case of India, and termed the same as “scary”.
He said with the fall in private investments, this was bound to happen, adding that concerns are both cyclical and structural, and made it clear that there is no magic wand to correct things up.
Making it clear that he holds “bearish” views on the economy, there are a few things which can cheer investors, and pointed out to careful stock selection as a key.
Stating that the house is “overweight” on India, its head of India equity research Abhiram Eleswarapu said, “market is not about the conomy, but only about the top 50 companies.”He, however, said that there are risks to its market expectations, including stagflation, the government’s budget moves and if the US Federal does not cut interest rates twice.
Raychaudhuri said the government should not look at the fiscal deficit number and cut down expenditure to achieve the target, warning that such a move can ensure that the current growth slowdown continues.
In the upcoming budget, the government is most likely to take the middle path of not becoming too liberal on the fiscal deficit front, so as not to offend the rating agencies, and not be too tight either which will take care of growth concerns.
He recommended that rather than concentrating on a fixed number, the government should ensure that the quality of deficit is such that there is enough of impetus to growth.
There is also a divergence between rural and urban inflation, wherein price rise in rural areas is sagging while the same in cities is soaring, pointing out to a problem on terms of trade that needs to be rectified, he said.
On the lack of transmission, he said political expediencies are unlikely to result in the government reducing small savings rate – one of the biggest detrimental factors.
The RBI is also unlikely to cut rates in the next two quarters because of the high inflation print at 7.35 per cent.