As the government addresses long pending issue of supply side constraints , increased public investments may emerge as a key market catalyst for 2015 said Deutsche Bank on Thursday.
“Returns on public spending accompanied by the organisational capacity to spend will have a significantly higher multiplier impact on the economy relative to spending on redistribution economics where leakages are extremely high,”said the global financial services major in a strategy report.
Joining its peers from the broking community, Deutsche set a Sensex target of 33,000 for the year, depicting 20% annual return for the 30-share benchmark. “At our target the Sensex would trade at 18.4x FY16 EPS and 15.5x FY17 EPS, with earnings CAGR of 17.7% over FY15-17,” said the note by analyst Abhay Laijawala and Abhishek Saraf. It highlighted financials, industrials and materials as overweights while key underweights include IT services, telecom and consumer staples.
Citing improvement in most macro indicators in past two years, Deutshce Bank now sees a higher probability of a rating upgrade and said that a rating upgrade will likely entail multi-layered benefits for Indian economy and markets. It observed that over the past decade India has witnessed 4 instances of rating upgrades by S&P and Moody’s and on an average Sensex has returned 9% in the following 6 months and 40% in the following 12 months of ratings upgrade.
“Boost to capital inflows and improved perception of India on the back of rating upgrade should help moderate volatility associated with US rate normalization and create some headroom for RBI to ease monetary stance,” added the strategy note. Deutsche Bank said that India is likely to remain one of the favoured emerging markets even as expectations of normalization by the US Fed and a subdued commodity pricing environment will continue to drive multi-asset differentiation within emergingmarkets.
It also acknowledged that among key emerging markets, India has demonstrated one of the best improvements on external front with sharp uptick in capital flow, current account deficit in a comfort zone and healthy accumulation of forex reserves. fe Bureau