Suresh Mahadevan, HoR, UBS Securities sees Sensex target of 13500. He expects a 5% growth in earnings in FY09 and a flat growth in FY10. According to him, economic growth is likely to revive by second half of 2009. He feels that markets are trading close to trough valuations and a rally is likely before elections.
According to him, ICICI Bank is trading at close to 'distress' valuations and is a good buy right now. He is negative on HDFC Bank due to valuations. SBI loan book growth is aggressive and could result in negative fundamentals, he added.
He believes that auto stocks are pricing in bad news already and more downside is seen there. He is negative-to-neutral on commodities, refining margins. He is also negative on oil marketing companies, negative-to-neutral on steel companies.
He is selectively bullish on infrastructure space in the long-term, but currently not confident. He feels that infrastructure companies' order books may show negative momentum over next two-three months.
First a word on your Sensex target of 13,500- how you derived it and how you feeling about the market right now?
A: As we said in the report we are quite bullish in the medium-term and Sensex currently is trading at almost 10 times earnings and price to book is 2.5 times which is clearly close to trough valuations we have seen historically. We believe that the economical growth will start reviving in the second half of the next fiscal year.
The way we are deriving the Sensex target is very simple; we assume a 5% growth in EPS in FY09 and flat EPS growth in FY10 and then we put a trailing multiple of 15 times. The reason why it is 15 is because 15 is where the market is somewhere in between trough and a recovery. So at the trough market trades at around 9 times at the low and in a recovery typically it trades anywhere from 20-21 times trailing earnings. So, we have taken an average and put it at 15.
By March 2010, I would at least assume we have a partial recovery in the markets. So that is where we get our Sensex target of 13,500. (source : CNBC TV18)
Rupesh Yatesh Dalal
MARKETCALLS
