Sensex may hit to 32000 levels by March: Religare Securities



The Indian equity markets performed exceptionally well in 2014 and are likely to carry this momentum in the coming year too, as a result of delivery on domestic policy implementation and relative global economic stability.

The FIIs inflow was strong and the Nifty and the Sensex delivered gains of around 30 per cent YoY. In the midst of action, several small caps and midcaps gave outsized returns to investors. Luck too played a part with crude oil prices plunging 40 per cent within the year, which lowered our import bill significantly, bringing CAD and the fiscal deficit under control.

The rupee is flirting with 64 and that may not necessarily be a bad thing, though a steep fall could spook investors for a part of 2015.

Overall, the New Year looks good with significantly reduced inflation and signs of policy decision being taken in earnest. This should start to get visible in corporate earnings as well, which are expected to grow at 15 per cent over the next two years, supported by lower input cost of raw materials and finance.

In fact, cooling inflation will eventually lead to rate cuts. So the question now not is ‘whether’ but ‘when’. he markets will benefit from this, but the divestment program of the government could volatility as will the US Fed’s decision to increase interest rates in 2015.

International factors can play spoilsport, e.g the strength of the US dollar and the price of crude oil which are beyond our control. But since India seems to be on the fast track, money from foreign and sources should continue to flow in as everyone will like to get a slice of the India growth story.

We had upgraded our base case market valuations from 14x to 15x forward earnings vs. the LTA (Long term average) of 15.8x post general election this year. At FY15/FY16 earnings growth of 15% each, that translates to a Mar’15 target of 27,000 for the Sensex.

This has been crossed and depending on the reform trajectory and macro recovery, our bull case for the Sensex is that it could well rise to 18-19x, which comes around the 32000 mark, and we would review the same around that time. As always, a lot will depend on policy delivery and its effective implementation because expectations are high and must be met for sustained market growth.