Deutsche Bank cuts Sensex’s Dec target

Deutsche Bank has cut its December 2015 target for the Sensex to 28,000 from 31,000 on concerns over global growth. The foreign brokerage’s move follows CLSA, which cut its Sensex target by 6 per cent for December 2015 to 30,000 in the first week of September. CLSA expects short-term pain and earnings disappointments too. However both foreign brokerages expect stronger earnings growth beginning FY17 on lower inflation and possible rate cuts.

Stay defensive: Deutsche

The foreign brokerage firm expects financial market volatility in emerging markets to continue until commodity prices and EM currencies stabilise. As a result, foreign portfolio inflows into EMs are also likely to remain muted till things stabilise or settle down.

However, India is relatively better positioned among EMs due to better macro-economic health and domestic demand-driven model. But it is not completely isolated in the event of huge redemptions and global macro factors will continue to dominate investor sentiment, Deutsche Bank said.

Deutsche prefers to stay defensive till the EM currencies stabilise and play on themes, such as dollar-driven companies, urban consumption, policy action and utilities.

The brokerage house’s preferred picks are: Tech Mahindra, TCS, Infosys, Nestle, Godrej Consumer Products, Zee Entertainment Enterprises, IRB Infrastructure and Developers, Shree Cement, Cummins India, JSW Energy, NTPC, Maruti Suzuki, HDFC Bank, L&T, Apollo Tyres, Hindustan Petroleum Corporation, Bajaj Finserv and Ashok Leyland.

Play on capex: CLSA

Notwithstanding near-term earnings disappointments, CLSA expects the market to deliver a cumulative 34 per cent return by September 2017. The foreign brokerage believes that the worst is over for corporate profitability, which is close to an all-time low, and expects stronger earnings growth to be visible from FY17.

“Structural positives of lower inflation, demographics-driven developmental politics and rising domestic equity inflows suggest a bright outlook over the longer term,” it said in a strategy note.

CLSA advises investors to take advantage of the recent weakness in capex cycle and discretionary consumption plays. Companies, such as Bharti Airtel, HDFC Bank, ICICI Bank, L&T, PVR, UltraTech and Zee Entertainment are its top picks.