'Sensex to touch 22K in 12 months'

Switzerland-based bank Credit Suisse said on Tuesday it expects the Bombay Stock Exchange's 30-stock barometer Sensex to touch the 22,000 mark in 12 months.

"The consensus from the industry is that the Sensex companies earnings should be (up) 18-19 per cent. Rising costs and interest rates are expected to weigh on profitability, so on a conservative growth expectation of 15 per cent, it will be possible," Credit Suisse Head India Equity Research Toral Munshi told reporters in Mumbai.

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Munshi said the 15 per cent growth coupled with clarity on foreign investment in retail and insurance, and stabilisation of inflation would enable the Sensex to touch 22,000 points.

She said some of the stocks in the fast moving consumer goods space had touched their lifetime highs during the past week, while others had shed 40-50 per cent due to negative news flow.

"Some stocks are highly valued. They are valued at the markets at 22,000, while some stocks are valued (as) if the markets were at 16,000," she said.

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To illustrate her point, Munshi said stocks like Tata Consultancy Services, ITC, Housing Development Finance Corporation and Hindustan Unilever were valued high, while the valuations of Reliance Communication, Reliance Infrastructure, Steel Authority of India and DLF, were low.

"Unfortunately the sectors that have not been performing well have a higher weightage on the Sensex than those which have performed better in recent months," she said.

The telecom sector and interest rate-sensitive sectors like banking and auto looks attractive at the present stage for an investor to include in his portfolio, Munshi said.

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"The telecom sector is witnessing signs of recovery after a challenging two-year period," she added.

Munshi further said that inflation continued to be the single most worrying macro factor for Indian policymakers.

Inflation was structural and slightly beyond the Reserve Bank of India's reach, she said.

"The RBI should pause after two rate hikes as growth is decelerating and we have already seen signs of growth slowing down," she said.

Since March, 2010, the RBI has upped its key rates 10 times, with the latest being on June 16, when it hiked short-term lending (repo) and borrowing (reverse repo) rates by 25 basis points each to 7.5 and 6.5 per cent, respectively.

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Credit Suisse, however, estimates the GDP to be 8.5 per cent for the current fiscal.

"We are estimating 8.5 per cent GDP for FY12 and can downgrade it to 8 per cent if the monsoon is bad. But still 8 per cent is quite a robust growth for the economy," Munshi said.

Credit Suisse forecasts the FY 13 GDP to be 8.7 per cent.

Apart from inflation posing a problem, the slower industrial production was also a concern, she said.

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"Sectors such as construction, mining and railways, which are government-driven, have been facing delays in decision making or ordering activities. Execution has also been lagging.

"A lack of pick-up in the coming months could lead to worsening of infrastructure bottlenecks, impacting longer term growth," she added.

Euro zone nation crisis could see foreign institutional investor outflows, Munshi said adding it could work in India's favour as it will help cool-off global commodity prices, thus reining-in inflation.