Monday, May 11, 2015

SENSEX TAREGT 33000...NO CHANGE

American brokerage Bank of America-Merrill Lynch (BofA-ML) today retained its Sensex target at 33,000 by December, but said in the medium term, the Dalal Street will see more volatility. "We continue to maintain our December Sensex target of 33,000 points. But near-term the markets will remain subdued and range bound with a negative bias, as quarterly earnings are low and more earnings downgrades are likely over the medium term," BofA-ML Analyst Jyotivardhan Jaipuria said in note.
"Also, the India versus GEM premium is near all-time at 35 per cent the GE averages," Jaipuria said. The markets are likely to witness another quarter of weak growth in the ongoing earnings season. Mirroring the previous quarter when aggregate Sensex profit fell 1 per cent year-on, profit growth is once again going to be subdued at 1 per cent, he said, adding he sees more earnings downgrades for the next few months before stabilising and earnings upgrades may not start until next year.
On a top-down basis, we expect 2015-16 consensus growth estimates of 18 per cent to get downgraded to 12-13 per cent growth, he added. However, he noted that FIIs have the all-time high overweight on the domestic market. This is on the back of nine consecutive quarters of positive FII inflows. Strong FII inflows have resulted in all-time high foreign ownership for the markets at about 28 per cent. While GEM funds have a 12.8 per cent weight on the country against the index weight of 7.7 per cent, which is a massive 510 bps OW.
Noting that the Sensex has rich valuations, he said post-2014 polls, the markets re-rated and have been trading at 16 times one-year forward PE. And despite the recent bloodbath, the valuations are still a 10 per cent premium to long term averages. Also, in the GEM context it is currently at a 35 per cent premium to GEM, he said.

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