<b>Sensex target for CY07 is 15,000: UBS</b>

UBS Investment Research, a global equity research outfit, has raised the Sensex target to 15,000 for 2007 from its earlier estimated level of 14,000.

The increase in target is driven by a more supportive outlook on valuations. UBS has enhanced its one-year forward P/E target to 16.5 from 15.4 earlier as investor confidence in India's growth is likely to be sustained though valuations appear stretched.

UBS believe that the likely drivers of the market in 2007 are stable growth, global soft landing, forthcoming investments, margin expansion in finished goods due to the decline in raw material prices, and the strengthening of the rupee. The only blemish to the India growth story will be monetary tightening and large equity issues in the pipeline.

The overweight sectors will be engineering, pharma, cement, IT and FMCG. Banks and energy sectors are likely to underperform in 2007.

The UBS Sensex target level of 15,463 implies 11% returns from the current levels when compared with an outlook of 13% returns from the Asian equity markets.

Metals are expected to give returns of 53.1%, and the FMCG sector is likely to post returns of 45.4%. Auto (+29.8%), diversified (+23.9%) and pharmaceuticals (+22.3%) would be major growth drivers in 2007.

UBS expectation of 11% growth in Sensex in 2007 is also based on corporate earnings forecasts of 19% in financial year 2008, down from earnings growth of 25-40% registered between 2003-04 and 2006-07(E).

A slowdown from FY07 is predicted on the high base created over the past four years, and the possibility of some slowdown in consumption due to the expected rise in interest rates.

UBS is expecting earnings growth of 33.4% in Sensex stocks in financial year 2007. The strong earnings in 2007 is likely to be from telecom (146%), cement (125%), pharmaceuticals (103%) and diversified (73%).  Power (7%), petrochemicals (11%), banks and FMCG (19% each) will be modest growth drivers.