The year 2012 saw several foreign brokerages revise their targets for the Indian market. While many of them were bearish on India till the beginning of August, dire predictions gave way to projections of positive tidings towards the fag end of the year.
In August 2012, CLSA Asia-Pacific Markets lowered its 12-month target on Sensex to 18,200 from 19,500 to factor in a corporate earnings downgrade. The brokerage singled out faster slowdown of growth as the key downside risk and said it would remain cautious on the markets till it saw some evidence of investment demand picking up.
Giving CLSA company were Morgan Stanley and UBS. In August, Morgan Stanley cut its year-end target for Sensex by 3 percentage points to 18,850, citing weak earnings growth. In September, UBS cut its year-end target for the BSE Sensex by 9.5% to 19,000 from its earlier projection of 21000.
The brokerage pointed out that FIIs outflows could pose a major risk to the Indian equities: “If we see significant FII outflows, we believe Nifty/Sensex can correct further by 15-20% based on our bear case scenario.”
However, the Sensex ended 2012 with nearly 25% gains closing around 19,500 levels. In fact, FIIs went into an overdrive in the second half of the year, shopping for equities worth more than $16 billion from July till December against net purchases of about $8.5 billion from January to June.
The brokerages were probably taking a cue from rating agency Standard & Poor’s revision of its outlook on India’s long-term rating from stable to negative in April. S&P had warned that there was a one-in-three chance of a downgrade to India’s BBB- sovereign credit rating, citing a weakening global economy, falling growth prospects and political paralysis as areas of concerns.
Nearly two months later, ratings agency Fitch downgraded India’s growth outlook to ‘negative’, citing restricted progress on the fiscal consolidation front. While the market did stabilise somewhat in July, there was more bad news to follow.
Between September and December, the BSE Sensex rose 11%. Unsurprisingly, foreign brokerages hurried to revise their targets for the benchmark indices. In the last week of November, ratings agency Moody’s announced that it would keep India’s credit outlook as ‘stable’, saying the country had a high savings rate and its private sector remained competitive.
This announcement was soon followed by foreign brokerage Goldman Sachs upgrading Indian stocks to ‘overweight’ from ‘market-weight’ and setting a December 2013 target