Mumbai: Indian benchmark indices exceeded the expectations of brokerages in terms of returns in 2017 after two consecutive years of indices ending the year at levels lower than these index targets. The Sensex ended the year 2017 at 34056.83, higher than the year-end targets of 29000, 30500 and 30000 that Deutsche, HSBC and Citi, respectively, had set at the beginning of the year.
Domestic inflows made a big difference to the market in 2017 and it is these flows that are likely to help the market in 2018 as well, experts said.
However, even as brokerages are positive on the Indian markets in the long term, they have been conservative in setting targets for 2018, with many expecting low double-digit returns. This is because of risks such as high oil prices, potential fiscal slippage and political uncertainty ahead of the 2019 general elections.
For example, Deutsche Bank has a target of 37000 on the Sensex, which implies a potential upside of 8.3% from Friday’s closing level of 34153.85 on the Sensex. “While we expect markets to head higher in 2018, we concede that the record low volatility seen in 2017 is unlikely to be repeated this year.
The positive global undertone could be challenged by a faster than anticipated rise in inflation,” said Abhay Laijawala and Bijay Kumar of Deutsche Bank in a note released on Wednesday. Deutsche Bank said rising oil prices could imperil macro-economic stability that India has achieved over the past few years. “In case oil prices rise beyond $70/barrel, the government may be compelled to stretch the fiscal deficit as political exigencies in a pre-election year may constrain the government from cutting public spending or raising domestic fuel prices,” said Deutsche Bank.
Credit Suisse said it is cautiously optimistic on Indian equities. While the reform momentum is enthusing, Credit Suisse said, the fiscal crunch, upcoming elections in several states, earnings downgrades and high valuations are causing nervousness.
Credit Suisse does not expect any sharp or prolonged correction either as a strong global growth outlook and domestic flows should support the market, especially since the outlook for other asset classes such as real estate and gold is benign.