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Double-digit Sensex returns in 2020? Give me a break, say D-Street veterans

Dalal Street analysts expect an average 11 per cent growth in Sensex and 8 per cent expansion in Nifty in the year ahead, as they expect a likely recovery in economic growth to drive the market going forward.

Analysts have an average 2020 year end target of 13,209 for Nifty and 46,050 for Sensex. They also expect the broader market to recover and outperform the benchmark indices in the New Year.

“The Smallcap and Midcap indices should outperform the frontline indices by a wide margin, as relative valuations for them are very attractive currently. A possible recovery in India’s GDP growth rate is likely to induce a lot of enthusiasm among retail investors, who predominantly invest in lower-rung stocks,” said G Chokkalingam of Equinomics Research & Advisory.

In 2019, Sensex returned 15 per cent year to date while Nifty gained 12.45 per cent. The broader market had another bad year, as BSE Midcap index lost 4 per cent and the BSE Smallcap index 9 per cent.

Manav Chopra, Head of Research for Equity at Indiabulls Ventures, is among the most bullish ones on the prospects of the stock market in 2020. He has a target of 54,000 for Sensex and 13,500 for Nifty.

Calendar 2019’s biggest gainers in the Sensex pack included Bharti Airtel (59 per cent), Bajaj Finance (57 per cent), ICICI Bank (50 per cent), Reliance Industries (38 per cent), Kotak Mahindra Bank (36 per cent) and Nestle India (31 per cent), among others.

India Inc will start reporting December quarter numbers from the second week of January. A positive surprise on the earnings front should help bolster the mood on Dalal Street.

Vinod Nair, Head of Research at Geojit Financial Services, has one-year target of 12,600 for Nifty50, with a marginal upside risk to Q3 earnings expectations and actual outcome.

Valuation concerns
After the rally seen in 2019, the headline equity indices are hovering near record high levels. The 30-share Sensex trades at a price-to-earnings ratio (P/E) of nearly 29 times against its five-year average of 23 times. Likewise, Nifty P/E stands at around 28 against its long-term average of 25.

A few analysts see it as concern going forward.

Suhas Harinarayanan, Head of Institutional Equity Research at JM Financial Institutional Securities, refrained from setting targets for Sensex or Nifty, but said given where valuations are now and the recovery needed to maintain those, a double-digit return in 2020 would be a positive surprise.

Value investor Shankar Sharma in a recent interaction with said largecaps are looking extremely stretched in terms of valuation, which defies all logic, whether it is for banks or consumer stocks.

“India is just an amazingly expensive market. Anything that is half-decent is trading at 50 times, 70 times, 80 times earnings, which is not acceptable,” he said.

Source: Economic Times