Party continues at Dalal Street

Written by fe Bureau | Mumbai | Updated: Mar 11 2014, 11:06am hrs
The BSE Sensex remained little changed on Monday, but closed at a new high, gaining for a fifth consecutive session, as overseas funds continued to shop for shares. The Sensex crossed the psychological 22,000-mark intraday for the first time in its history, before losing momentum in the last hour and a half of trade and falling below the level.

Foreign institutional investors (FIIs), who have been betting heavily on BJPs Narendra Modi to lead the next government at the Centre, continued with their buying spree for the 18th consecutive session. FIIs bought shares worth $205 million on Monday, provisional data from BSE showed, after purchasing $422 million worth of shares last Friday the biggest single day purchase since December 9. FIIs have pumped in $1.78 billion in the last 18 sessions.

Hopes of a new government, led by the BJP-led NDA, seems to have bolstered the confidence of overseas investors. A national poll conducted by CSDS had predicted on Thursday that the BJP-led National Democratic Alliance (NDA) would win 212-232 seats in the Lok Sabha election, while the Congress-led UPA would end up with between 119-139 seats.

On Monday, the 30-share BSE Sensex rose 0.07%, or 15.04 points, to close at 21,934.83, hitting an all-time high at 22,023.98 during intraday trade. The 50-share Nifty rose 0.16%, or 10.60 points, to end at 6,537.25. The gauge touched an intraday high of 6,562.20, marking its second consecutive all-time high.

A stable rupee and positive current account deficit numbers have helped. The rupee touched a seven-month high at 60.8425 versus the US dollar. Current account deficit fell to its lowest in 4 years, with the CAD for the quarter ended December 2013 slipping to 0.9% of the GDP to $4.2 billion, from 6.5% a year earlier.

Interestingly, the Sensex has already surpassed some of the year-end targets set by foreign brokerages of late. For instance, brokerage Deutsche Bank had recently set a Sensex target of 24,000 for December 2014, at which Sensex will trade at 15.8x FY15 EPS, in line with average of past five years. Citi, on the other hand, had set a target of 21,800 for December 2014.

Fund manager Prashant Jain, said in an interview with a private news channel: Current account deficit has been fixed, fiscal deficit, diesel prices continue to go up, inflation interest rates have peaked on how fast they fall, how much they fall, time will tell but it is safe to say they have peaked.

Sensex is now among the top performers in Asia year-to- date. It has given returns of 5.3% in dollar terms, beating returns by Chinas Shanghai Composite

(-6.8%), Taiwan Taiex (-0.95%), South Korea's Kospi (-4.08%) and Nikkei 225 (-5.4%).

Pre-election rally pushes indices near year-end targets set by broking houses

As the benchmark indices have stretched their pre-election run towards new all-time highs, they stand a tad shy of the December 2014 targets put out by various brokerages. Both the Sensex and Nifty are now just 6% to 13% away from the year-end targets announced by a number of foreign brokers.

Nomura and Deutsche Bank, which anticipated the Sensex to touch 22,000-mark by December 2013 and March 2014, respectively, are the most optimistic of the benchmark returns for 2014 with another 2,065-2,765 points of expected gains. Deutsche bank recently cited receding chances of a fractured election verdict and Sensexs move towards its long-term valuations to drive the Sensex towards 24,000.

In December last year, BofA ML pegged its 2014 Sensex target at 23,500, as it saw the benchmark trading at 15 times one-year forward earnings. The broker had then said that Indian politics and Fed tapering will be the focus of the markets in the first half of 2014 and will overshadow the economy and earnings that drive long-term market trends.

Bloomberg consensus estimates on the 30 index constituents indicate that the index may add another 10% in the next one year and hit 23,575 levels. This expectation appears in-line with the Nifty gains anticipated by brokers like Goldman Sachs and UBS, as per that 2014 market outlook announced towards the end of last year.