Motilal Oswal lowers Sensex target

Motilal Oswal Securities Ltd, a local brokerage, has lowered the Sensex target as rising interest rates and accelerating inflation dampens returns from equities.

Motilal expects the Bombay Stock Exchange's benchmark 30-stock Sensitive Index, or Sensex, to trade at 12,000 to 14,500 points by March next year, Motilal Oswal said on Thursday.

In its quarterly review for the three months ended December 31, Motilal had estimated the Sensex would trade at 13,000 to 15,500 points for the same period.

The brokerage reduced its Sensex target because of higher interest rates, it said. Motilal expects the index to trade at between 13 times and 16 times future earnings.

India's inflation remained above the upper limit of the central bank's target for a 16th straight week, adding to pressure for further increases in borrowing costs to contain prices.

The key wholesale price inflation rate was 6.39 percent in the week ended March 24 from 6.46 percent in the previous week, the Ministry of Commerce & Industry said in a report in New Delhi on Thursday. Analysts forecast inflation at 6.25 percent.

India's central bank raised a key interest rate a month before its scheduled policy review, later this month, because inflation wasn't slowing from a near two-year high.

Governor Yaga Venugopal Reddy has raised borrowing costs six times in 14 months to curb record bank lending and tackle inflation, which has stayed at about a percentage point above the bank's highest estimate.

Still, Motilal says that even as there are several concerns relating to the markets such as inflation and interest rates, they expect earnings to grow 33 percent for the quarter ended March 31, 2007, and 16 percent for the year ending March 31, 2008.