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Foreign brokerage CLSA has said the Sensex is poised to gain 75 per cent through 12-24 months, on a technical basis. A 75 per cent jump in the benchmark index could take it to 40,000-levels.
On Wednesday, the 30-share index closed at 22,277.
"A technical view of the recent breakout of Indian markets to new highs is that of a signal that the long-term uptrend off the 2003 low is resuming. This implies an upside target for the BSE Sensex of 39,707 (+75 per cent) through the next 12 to 24 months," CLSA said in its India strategy report authored by analysts Mahesh Nandurkar, Laurence Balanco and Abhinav Sinha. At current levels (21,483-22,023), however, the Sensex could see a temporary dip of three-five per cent, an attractive buying opportunity, the report added.
On a fundamental basis, too, the brokerage expects Indian markets to do well. It expects the Sensex to give compounded annual returns of about 15 per cent through the next two years. "We are looking at more gradual market gains...15 per cent…over a two-year period; largely in line with the earnings growth; a possibility of 5-10 per cent re-rating exists as earnings upgrades unfold from the second half of FY15," the report said.
The brokerage's fundamental and technical points of view converge on the sectors expected to lead the Sensex's uptrend. The report said the common 'buy' ideas pointed to a recovery led by domestic cyclicals. The broking firm is bullish on stocks such as L&T, State Bank of India (SBI), Maruti, GAIL, HDFC Bank and Reliance Industries and has recommended buying these stocks.
"Larsen, Maruti and SBI are already up 20-47 per cent up on expectations of a cyclical recovery. Within these three, Larsen and Maruti's valuations are close to 10-year historical averages, while SBI is at a 30 per cent discount," the report said.
Being low-beta plays, GAIL, HDFC Bank and Reliance Industries would see limited downside in case of adverse election outcomes, the report said.
The brokerage had a negative view on defensive sector stocks such as technology and health care. "The technical view is negative on exporters Dr Reddy's, TCS and Wipro. We note if a domestic cyclical recovery were to play out as expected through the next couple of years, cyclicals will outperform exporters," the report said. Last year, stocks in the technology and health care sectors were the favourites of investors due to 12 per cent depreciation in the rupee.
