India’s Sensex to Climb 16% by March, Pershad Says (Update1)
By Shiyin Chen and Susan Li
July 28 (Bloomberg) -- The Bombay Stock Exchange’s Sensitive Index is likely to rise as much as 16 percent to 21,000 by the end of the financial year given the outlook for India’s economic growth, according to Veda Investments LLC.
The nation’s economy may expand more than 9 percent, higher than the central bank’s forecast of 8.5 percent for the year through March, Vikas Pershad, chief executive officer of Veda, said in a Bloomberg Television interview. The Reserve Bank of India may increase its repurchase rate to “near 7 percent” after yesterday raising the rate to 5.75 percent, he said.
The Sensex, as the index is also known, yesterday added 0.3 percent to 18,077.61 after the central bank’s interest-rate increase signaled that policy makers are confident the pace of growth is robust. The gauge has gained 3.5 percent this year, making India the second-best performer among the world’s 10 largest stock markets by value.
“There are limited indigenous shocks that could slow the Indian economy down,” Pershad said in a Bloomberg Television interview from Chicago. “I would say that 20,000, 21,000 would be highest probability case for Sensex towards the end of this fiscal year.”
Reserve Bank of India Governor Duvvuri Subbarao also boosted the reverse repurchase rate to 4.5 percent from 4 percent and pledged to review borrowing costs at meetings every six weeks, up from once a quarter. Economists surveyed by Bloomberg had expected a quarter-point increase in both rates.
‘Right Direction’
The steps followed five months of wholesale inflation exceeding 10 percent, which has imperiled the purchasing power of a population where almost three quarters live on less than $2 a day.
“When you have double-digit inflation in food, in fuel, in cotton for three-fourths of the population it starts to really pinch them,” Pershad said. “The RBI is moving in the right direction.”
The investor said he favors financial services, infrastructure and consumer goods stocks including Godrej Consumer Products Ltd. and Emami Ltd.
Godrej, India’s second-largest maker of bath soaps, has jumped 36 percent in Mumbai this year, while Emami, a maker of skincare cream, has soared 75 percent. The stocks are valued at 26 times and 29 times estimated earnings respectively, compared with the Sensex’s multiple of 18 times, according to data tracked by Bloomberg.
“Companies might trade at high multiples but not necessarily expensive multiples,” Pershad said. “The multiples are high but earnings are even higher.”
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