UBS sees Sensex at 22,600 in a yr

CONFLICTING SIGNALS ON THE INDIAN MARKET

Foreign brokerage UBS has raised its end-2008 target for the Sensex from 19,000 to 22,600, saying that domestic economic growth, which is insulated from the global economic slowdown, will help companies to report a strong performance.

In its India "� Outlook 2008 report released on Thursday, UBS said that it has factored higher valuations in an environment that will be characterized by sustainable lower cost of capital and reduced political risk.

Setting aside investor concerns on high valuations resulting from the strong performance of the Indian markets in 2007, Manishi Raychaudhury of UBS's India Equity Research team, said, "While a global economic slowdown and credit market dislocation could adversely affect Asian markets, the domestically-driven Indian market is relatively insulated."

Raychaudhuri sees a continuation of the strong investment cycle in infrastructure and industrial capex; peaking of banks' lending and deposit rates "� although he concedes that the central bank may not signal a peak in the near term; and positive earnings surprises and stable earnings growth as the key themes driving the market in 2008.

"Despite a mean reversion in earnings growth to a range of 20 per cent and 22 per cent, from 30 per cent and 35 per cent in the last three years, the price/earnings ratios of around 20 times are likely to be supported by earnings surprises from domestically-driven and interest rate-sensitive sectors, as well as a continuation of benign liquidity in the stock market," he added. The Sensex has surged by nearly 42 per cent from 13,942.2 points to 19,795.87 points during this calendar year.