If economic recovery happens, BSE Sensex expected to reach 43,560 by end of 2020: Poll

Indian stocks are likely to rise this year but only by a bit more than half as much as in 2019, according to market strategists polled by Reuters poll, who said much will depend on whether the domestic economy recovers from its current slowdown.

Median forecasts in the Feb. 17-25 Reuters poll of more than 50 stock market brokers and analysts reflected a slightly more pessimistic view about the Indian market's prospects than in a poll three months ago, amid a weak economy and a variety of external risks.

The benchmark BSE Sensex Index, which rallied over 14% in 2019, has plunged this week, echoing a global sell-off caused by the spread of the coronavirus. Most forecasts in the poll were collected last week.

The annual government budget on Feb. 1 also failed to impress stock market traders and investors, leading the index to a daily decline of more than 2%.

The latest Reuters survey forecast the BSE Sensex index would gain over 4% to 42,000 by mid-2020 from Tuesday's close of 40,281.20, down from the 42,696 predicted three months ago.

It was expected then to rise to a record high of 43,560 by the end of the year - also down from the 43,645 predicted in the November poll - the forecast full-year gain of 5.6% would be the smallest in four years.

"Given the strong run in global indices, we expect Indian markets to maintain a positive bias. However, the degree of outperformance or underperformance would depend on the economic recovery and earnings revival," said Ajit Mishra, vice president of research at Religare Broking.

The Indian economy was expected to grow at an annualised rate of 6% in fiscal 2020-21, according to a separate Reuters poll conducted a month ago, down from the 6.8% predicted in an October poll.

Indian corporate earnings growth, which has been weak in recent years, is set to improve, according to 39 of 45 respondents, or nearly 90% of them.

That view was partly driven by corporate tax cuts late last year and in this year's budget, along with an expectation economic growth will pick up gradually.

Poll participants were almost evenly split when over the impact of the recent budget on Indian stocks. A slight majority, 24 of 45, said the latest budget was a net positive for India equities. The rest said it was not.

"Given the lack of a major stimulus in the union budget to counter the economic slowdown and sector-specific stimulus for stressed sectors ... there is not much to enthuse about the earnings or growth outlook," said Sher Mehta, director at Virtuoso Economics.

Indian stocks aren't likely to get any significant support from the Reserve Bank of India, either. Inflation hit a near- six-year-high last month, reducing the chances of a rate cut in the near term despite the economic slowdown.

Indian stocks remain historically expensive, with the price-to-earnings ratio currently at its highest in the last decade.

"A handful of stocks that helped the index create new highs witnessed sharp multiple expansions, which in our view are unsustainable," said Kedar Kadam, head of equity research at Cholamandalam Investment.