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Nomura sees Nifty hitting 11,380 by December 2018 amid high political drama in Karnataka

Sunil Matkar
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For bulls to regain control, Nifty50 has to close above 10,785-10,800 in coming sessions where there is some resistance. On the downside, supports are seen at 10,417-10,550 levels.

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The outcome of the Karnataka Assembly elections was reasonably good for the BJP. But, D-Street witnessed a kneejerk reaction when poll trends indicated that it will be a hung parliament earlier this week.

The political drama is likely to continue but Nomura is betting on earnings recovery to take markets higher at least in the short term. The global investment bank sees Nifty hitting fresh record highs in the year 2018.

It expects the index to surpass its earlier record high of 11,171 recorded in January 2018 and scale to levels of around 10,380 by December 2018, Nomura said in a strategy note.

Past analysis suggests BJP wins at least 7pp more in vote share in Parliament compared to Assembly elections. Therefore, seat loss would unlikely be more than 5, in our assessment, if past voting trends continue, the note added.

Nomura expects the market to be sensitive to the assessment of the election outcome in 2019 given current market valuations. Though it expects a strong earnings recovery, the P/E multiple for Nifty at 17.5x is close to more than 1 SD above its 8-year average on expected earnings.

Nomura’s December 2018 Nifty target of 11,380 implies an upside of 6% from current levels.

The outcome of the Karnataka Assembly elections was reasonably good for the BJP. The party won 104 out of 222 seats with 36 percent vote share and emerged as the single largest party.

BJP did emerge as the single largest party which is giving comfort to the bulls but fell short of few seats to form the government.

The governor of Karnataka has invited the Bharatiya Janata Party (BJP) to form a government; Mr. Yeddyurappa, who is the leader of the BJP legislative party, is to be sworn in as chief minister on Thursday.

However, the BJP needs to seek a vote of confidence on the floor of the House within 15 days.

The Karnataka election resulted in a hung parliament. The BJP emerged as the single largest party, with 104 seats, up sharply from 40 seats in 2013, but below the simple majority of 112.

The incumbent Indian National Congress (INC) won 78 seats from 122 in 2013, while the regional party Janata Dal Secular, or JD(S), won 38 seats (including one from its ally Bahujan Samaj Party) versus 40 in 2013. The JD(S) has agreed to support the INC and the two parties together also staked a claim to form a government.