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Sensex At 22,500 By Year-end?

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Deutsche Bank has set a year-end target of 22,500 for Sensex, basing their target on the Finance Minister promise to reign in fiscal deficit, “economic pragmatism”, probable monetary easing, global growth recovery and turnaround in corporate earnings cycle.

“Since September 2012, there have been a lot of policy-related initiatives – all hinting at growth. The government is hinting at a diesel price hike in a calibrated manner – and that too, in an election year. Such steps go a long way to increasing investor confidence,” said Abhay Laijawala, head of research at Deutsche Equities, on the sidelines of their investor meet.

According to Laijawala, growth green-shoots (in private sector) will start coming out in the second half of this year. It will also re-start ‘stalled’ infrastructure projects. “A recovery in global growth will help our current account deficit in a big way. Expectations of a bounce-back in Chinese economy will help global markets in a big way,” he said.

On the near-4 per cent fall in equities since February this year, Laijawala said, “The correction was primarily due to the outcome of Italian election and resurfacing US fiscal cliff situation. Also, the market had a significant rally prior to the correction in February.”

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Laijawala’s sectoral preferences include interest ‘rate sensitives’ like banks and automobiles, global plays like IT and metals and domestic plays like oil and gas.

Deutsche expects the RBI to continue on the rate easing cycle and expects a further 75 bps cut in repo rate over the next few months.

“A 5 per cent growth is hardly anything for India. I think the RBI will now show urgency to bring back growth. Growth will take precedence over inflation,” Laijawala said.

Deutsche expects first level of earnings upgrades from June quarter onwards. The group is quite upbeat about budgetary proposals like the industrial corridor project,  direct benefit transfer and development of rural infrastructure.

Among infrastructure projects, brokers are placing a lot of hopes on Delhi Mumbai Industrial Corridor (DMIC), for which the government has committed additional funds on a need-basis.

“Work is happening at a good pace on the DMIC stretch.  It’ll be show-piece project for the country,” said Varun Goel, head of portfolio management at Karvy Stock Broking.

Like Laijawala of Deutsche, Goel is also quite bullish about equities market. He expects market (Sensex) to touch 25,000 levels by end of this year.

“We’re not expecting much downside from current levels. If we take a bad scenario, the market may consolidate at 5500-levels on the Nifty,” Goel said.

Goel likes private sector banks, IT, pharmaceuticals and mid-cap FMCG companies; he prefers to stay away from infrastructure, metals and cement.

“I’ve not idea about infrastructure; am not sure when the infra pack will start performing. Metals will continue to be at mercy of global events while cement companies will register low growth because of low demand and inadequate capacity utilisation,” Goel said.