Anticipated recovery in earnings to push up the Sensex.
The benchmark stock index may rise 35 percent in the next 12 months, extending a bull market in anticipation of a recovery in earnings the following year, UBS AG predicted. The Bombay Stock Exchange Sensitive Index may climb to 13,500 by March 2010, UBS analysts Suresh Mahadevan and Navin Gupta wrote in a March 26 report. Investors should be “overweight” in automobile, bank and metal stocks because these are industries that will benefit from low interest rates and a recovery in economic growth, they added.
The has surged 23 percent from a three-year low on March 9, pushing past the 20 percent gain that indicates stocks have entered a bull market. The measure slumped a record 52 percent last year as the global recession weighed on the outlook for earnings and damped investor appetite for riskier assets. “Indian stocks are likely to post one of the better growth rates in 2010,” the analysts wrote. India’s valuation “does not appear expensive compared with other regional Asian markets.”
The forecast of 13,500 is based on an assumption that the Sensex’s will climb to 16 times, the UBS analysts said. The index is now valued at 10 times reported earnings, compared with a multiple of 17 times for the MSCI Asia-Pacific Index and the market’s five-year average of 18 times, according to data tracked by Bloomberg.
Earnings may decline 1 percent in the year ending March 2010, before climbing 21 percent in the following fiscal year, the UBS analysts estimated. India’s fiscal year starts in April.
Slowing growth
Slowing growth may weigh on the outlook for India’s equities. Gross domestic product may increase an average 6.5 percent in the year ending March and the next fiscal year, the nation’s Planning Commission Deputy Chairman Montek Singh Ahluwalia said this week. The $1.2 trillion economy had registered annual growth of about 9 percent in the past four years.
Further gains may also be restrained by elections and the outlook for the nation’s economy, Citigroup analysts Aditya Narain and Tirthankar Patnaik wrote in a report. The may fluctuate between 9,000 and 10,500, the analyst said, without giving a time frame.
Also Read
“India’s bear markets have historically lasted 30 months on average,” the Citigroup analysts said. “The market is more likely to crawl rather than spike of its current trading band.”
More rate cuts
The Reserve Bank of India will adopt appropriate measures to boost economic growth, Governor Duvvuri Subbarao said yesterday after the nation’s inflation rate fell to the lowest on record, giving room for more interest rate cuts.
Sanjiv Duggal, the HSBC Holdings Plc investment director who oversees the world’s largest India fund, said last week the Sensex will rebound on cheaper valuations and government stimulus plans. He also said stocks will benefit as the government pumps about $100 billion to revive growth in Asia’s third-largest economy and the rupee’s plunge against the dollar the past year lures back overseas investors. and were among the 15 stocks in UBS’s model portfolio. ICICI Bank, India’s second largest, has retreated 16 percent this year, while Maruti Suzuki, the nation’s biggest carmaker, has rallied 48 percent.
The author is a Bloomberg News columnist. The opinions expressed are his own