Sensex likely to touch 4,400 by March, says US brokerage

Sharad Mistry

Mumbai, Aug 24: THE Indian stock markets are seen bouyant during the months ahead by a couple of foreign brokerages, one of which even predicts an over 30 per cent jump in the BSE 30-share Sensex to 4,400 by March 2002. The Sensex has been hovering around 3,300 points since the last two months.

“We are positive on the Indian equities and recommend overweight India in a regional context,” says US-based Salomon Smith Barney (SSB) India Research and country head Ratnesh Kumar in the recently released Equity Research Strategy: IndiaPictures. SSB is a member of Citigroup Inc and is affiliated with Citibank NA, USA.

However, Mr Ratnesh Kumar feels, concerns remain due to reduced liquidity after trading practices changed from July 2, probe into various shady deals and the UTI imbroglio. “But the market may have already priced in some of these,” he adds.

Amidst all too gloomy scenario for the Indian economy — sharply falling credit offtake, declining foreign direct investments, sluggish portfolio investments and general earnings gloom from equity investments — the SSB outlook should cheer up market participants, observers say.

Reasoning the optimism in India’s investment scenario, Mr Ratnesh Kumar says: “Overall corporate earnings have been holding up well. In the first quarter of fiscal 2002, earnings for the top Indian companies were up 21 per cent year-on-year, and we expect a 20 per cent earnings CAGR over FY01 estimates-03 estimates. Cost cuts, lower tax rates and interst cost savings have helped counter industrial slowdown for the old economy sectors, which mostly depend on domestic demand.” Further, a good monsoon has raised hopes of revival in domestic demand, led by the agriculture sector...Also, since the beginning of the year, there have been potholes aplenty, many self-inflicted...but the corporate earnings have shown remarkable resilience, pulling valuations down to their most attractive in the past decade.”

The India overweight is primarily based on domestic-demand plays — automobiles, capital goods, and consumer and media stocks.
Even the pharmaceutical sector is seen as overweight, as “leading players are successfully capturing niche generic export and research and development opportunities and are not affected by a slowdown in their export markets”.

Reiterating neutral stance on the information technology sector, SSB recommends a more aggressive posture on selected front-liners because of their growth prospects and value. Even for cement, it is neutral again as “the sector’s best outperformance seems to be behind it”.

Among other sectors that are categorised as underweight are: metals, petrochemicals, telecom and banks — “we expect no further interest rate cuts in India, and credit demand remains anaemic.”

Ignore the skeptics, rural sector recovery is in the offing, says SSB. One of the major reasons for this, Mr Ratnesh Kumar feels is that the prospects of normal (or better) rainfall are very bright this year. “After two years of negative growth, agricultural production volumes could bounce back with nine per cent growth in FY02...higher growth in cash crops and political compulsion to keep farm prices up will be enough to revive rural demand significantly. That should help
domestic demand and corporate earnings, probably with a 6-12 month lag.