Deutsche sets December 2016 Sensex target at 29,000; top bets

MUMBAI: Deutsche Bank has set its target for Sensex target by December 2016 at 29,000, about 12% above Thursday’s closing price. The investment bank said corporate earnings are likely to turnaround in 2016 led by urban consumption and public investments. Its top stock picks are BPCL, Godrej Consumer Lupin, Bajaj Corp., Cummins and Federal Bank among others.

“While further consensus earnings cuts cannot be ruled out completely, we believe that the cuts may be shallower than what has been witnessed in the past 3 quarters,” said Deutsche’s analysts Abhay Laijawala and Abhishek Saraf in a note to clients. “…earnings should benefit from reflation in WPI, signs of an urban consumption recovery and the translation of the unrelenting push on public investments by the government, apart from a benign base effect”. At Deutsche’s Sensex target of 29,000, the index will trade at 17.3 times estimated earnings of the financial year ending March 31, 2017. The five-year average price to earnings multiple of the Sensex is 16.3 times.

“The multiple is justified given our FY17 Sensex EPS growth of ~18% which compares favorably to earnings CAGR (compounded annual growth rate) of ~10% over the past five years (FY10-15),” the Deutsche analysts said.

The investment bank said the union budget in February could provide visibility on the direction of the capital expenditure cycle. “Any announcement on repealing retrospective taxation could emerge as a game changing event for galvanizing foreign direct investment, which could strongly offset weak domestic private sector investments,” the analysts said.

Deutsche top stock picks:

Large-caps: BPCL, Godrej Consumer, Lupin, M&M, NTPC, Shree Cement, SBI, Sun Pharma, Titan & Zee.

Mid caps: Bajaj Corp, CONCOR, Cummins, Federal Bank, Gujarat Gas, JSW Energy, Just Dial, Marico, Shriram Trans Fin, SKF, UPL & Whirlpool.

Top sell ideas: Dr. Reddy’s, Larsen &Toubro & Tata Motors