BNP Paribas on Thursday said it expects Sensex to touch 44,500 points by the end of this year. This would mean an increase of 6.12% over Thursday's closing.
Markets have continued to hit new highs in 2020 in anticipation of benign global environment and a fiscal stimulus in the Union Budget to revive growth.
BNP Paribas believes that the domestic markets are likely to gain because of the easier liquidity conditions globally on the back of the accommodative stance of central banks across the world which had pushed foreign investors to invest in emerging markets like India.
"In the Asian investments context, we are overweight on India and that may sound surprising because as far as the economy was concerned, I was standing bearish all this time," Manishi Raychaudhuri, managing director – head of equity research Asia-Pacific at BNP Paribas, said before mentioning that the fall in growth momentum in the country had been the steepest. He explained BNP Paribas was always in search of compounders that do not have to organically expand their balance sheet and can generate similar returns that they are generating.
Comparing Indian markets with Chinese and other South-East Asian markets, Raychaudhuri said a disproportionate number of compounders could be found in the Indian markets, which is why foreign investors were attracted to the Indian market.
Stock selection, according to him, was an important feature that made the Indian market attractive.
Currently, the brokerage has financial, information technology and telecom as well as oil and energy stocks on their portfolio. According to the company, the risk to their market expectations include stagflation, the government's budget moves and if the US Federal Reserve doesn't cut rates.
In December, foreign investors invested funds into Indian equities with India receiving $800 million through the month. The domestic market is dependent on the foreign fund flows coming into the Indian market and the last six months have been driven by foreign fund flows into emerging markets.
The flows, according to BNP Paribas, is also because of the US Fed cutting rates which could continue in the second half of the year.
"It is a critical assumption on the part of our global economics team. While the synchronised slowdown is continuing globally, in the US it will possibly be more accentuated in the first half of 2020 so you will have relatively negative surprise as far as economic data points. The Fed is data dependent, they would be forced to cut rates once in March and once in June."
Raychaudhuri added before stating that emerging markets would be the beneficiaries of these rate cuts from which India would be one of them. This would also help the emerging market currencies. The Indian rupee will also do well in 2020 along with its Asian peers, BNP Paribas said.
From the upcoming Budget, the company is expecting the removal of long-term capital gains tax.
For 2020, the company said it expected the top companies on the benchmark to perform well along with a select few mid-cap and small-cap stocks.