Oct 6, 2009
Sensex @ 21000 in 2010?
Madhu Kela of Reliance MF, Nilesh Shah of ICICI Pru AMC and Ajit Dayal of Quantum AMC believes Sensex will hit new high in 2010. I tend to agree with them. I had mentioned in my earlier post of Indian economy growing by atleast 8% in FY11 which I see as one of the reason for the index hitting new high as GST, Oil & Gas Discoveries and Global recovery boost the earnings of the Sensex companies. The added trigger could be the de-control of oil prices since the election is now over. Even if oil prices are not decontrolled completely but raised around the market prices, subsidy burden of ONGC will ease considerably and boost its earnings. ICICI Bank business should have undergone a significant change with focus on CASA,NIMs and ROE while bank’s lending should pick up after the consolidation. HDFC and HDFC Bank will continue with their 20%+ and 30%+ earnings growth. With the capital inflows coming back into the country, Real-estate players will start raising money through equities and pay back the debt to the Indian banks. This will ensure that the restructured assets have not turned bad. SBI & ICICI Bank will be the biggest beneficiaries. L&T might demerge some of its subsidiaries while its infrastructure business continues to deliver 25% earnings growth. BHEL too should continue to deliver 20-25% growth. US economy is expected to recover by the end of 2009 which should lead to increased spending by the US companies. Infy,TCS and Wipro will benefit from the same but the rupee appreciation will take off some sheen. Defensives like Telecom and FMCG should as usual deliver 15%+ growth . Metals will rebound as global economy recovers. Autos could be under stress as interest rates rise and commodities shoot up so growth could be around 10% in this sector.
If the global recovery happens by the end of 2009, Sensex FY11 EPS and FY12 EPS should be around Rs 1090 and Rs 1250 respectively which markets will start discounting by the end of 2010. At the one-year forward PE of around 17, Sensex does have a high probability of hitting new high. Inflation and Commodities prices remain a risk on the downside.
- http://deveshkayal.wordpress.com/
Deutsche Bank and Citigroup analysts are also fairly sanguine about Indian equities in 2008, with both banks raising their year-end targets for the Sensex in 2008.
Deutsche Bank set its Sensex target at 23,000 points, a rise of about 11% from current levels. The bank’s previous target, which was set in September 2007, was 18,000 for September 2008.
“Strong 23% index earnings growth — with upside from rate/tax cuts — should drive the market higher even if there’s a modest multiple derating in case of a U.S.-led equities’ sell-off,” said Pratik Gupta, an analyst at Deutsche Bank, in a research note on Monday.
Citigroup’s new 2008 Sensex target range is 23,950 to 25,050. That represents a big increase from its previous target range of 17,500 to 18,400 set in June 2007.
Citigroup made some big changes to its India model portfolio, including downgrading the capital goods sector to neutral from overweight, saying that “while growth remains appealing for the sector, high valuations and over-ownership leave little room for disappointments.”
“As the market enters 2008, we think the feel-good of a bull market in its fifth year is unmistakable and momentum is clearly positive,” said Ratnesh Kumar, an analyst at Citigroup Global Markets, in a research note on Monday.
Citigroup expects growth momentum to be maintained despite challenges, with GDP growth of 9% and earnings growth of 20%.
“Growth is the main elixir of Indian equities,” Kumar said. “Key growth drivers should be turn-up in capex, consumption growth due to rising incomes and trickle-down effect and outsourcing.”
Agriculture will remain a wild card to overall GDP growth numbers since it depends on the unpredictable monsoon season, Kumar said.
Brandt of EPFR Global said: “India’s agricultural sector is always an important part of the puzzle. It’s still true that a fifth of GDP and two-thirds of the work force are still tied to the land.”
In addition, “the government is beginning to move forward with some more ambitious infrastructure projects,” Brandt said. “If that money is well spent, that could reinforce the sentiment that India is a good bet for the medium term.”