GDP Growth Could Come 4% In A High Stress Scenario - BoFA-ML

In a latest report Jyotivardhan Jaipuria, MD and Head of Research of Bank of America Merrill Lynch (BoFA-ML), has said that he sees Sensex touching 16000 on weakening of the countries fundamentals.

He has observed that the Indian markets are not the worst performing markets despite having the one of the worst performing currency. The company found 3 instances when rupee depreciated more than 15%. It found that in these three instances, market had fallen sharply but, it recouped all the losses within three months.  Any policy measure such as quasi sovereign bonds/NRI bonds is a key to the markets.

On rupee he has said that the rupee should stabilize in the Rs 63-69 band but in case of rate hike, the rupee may touch 75 against USD. On the GDP front he is not very bullish saying that the GDP growth could come as low as 4% in a high stress scenario.

The oil and gold prices would remain a major risk to the economy. So far the major outflows have been from the debt market and minimal outflows from the equity markets. If uncertainty sustains then it may put pressure on the equity markets leading to outflow from the equity markets as well. The weaker currency will also elevate the inflation, current account deficit and fiscal deficit which will further weaken the fundamentals of the country.

Going ahead BoFA-ML expects earnings downgrades to rise. It also expects downgrade to happen in the Sensex as well. It has said that the market is trading below its long term average forward price to earnings ratio of 14.1x but at its low the market can trade at the P/E of 10x whenever there is a global crisis. On the stress level, it has found a P/E multiple of 11.5x giving Sensex target of 16,000.

BoFA-ML has picked outperforming sectors like IT and Pharma. The major stock picks at this juncture are TCS, Infosys, HCL Technologies, Sun Pharma, Lupin, Cairn India and Tata Motors. It has also advised to sell HUL, Adani Power and NTPC.