Even though the Sensex opened flat today, foreign brokerages have turned bullish on Indian markets with the prospect of more foreign fund inflows aided by further easing of monetary policy by the US Federal Reserve and on the back of reform measures unleashed by the UPA which have brought back investor confidence.
Leading foreign banks Deutsche Bank, Citigroup and Morgan Stanley have raised the year-end target for Sensex to almost 20,000 as global liquidity and domestic sentiment improves.
While Morgan Stanley expects the market to climb to over 23,000 by December 2013, Citi, too, has raised its June 2013 target for the Sensex by eight percent to 19,900, from 18400 by December on the back of increased foreign flows. Deutsche Bank has set a near-term target (December 2012) of 20,000, . Even Nomura sees the market rallying in the near term; however, it hasn’t revised the target.
Conditions for a new bull market are getting slowly satisfied,” said Morgan Stanley analysts in the client note. “The yield curve has stopped flattening, liquidity is improving, valuations appear supportive and profit margin expansion is a growing possibility in the coming months. The market is likely to form a new base with positive developments on domestic policy,” they said.
In a report titled ‘Just what the doctor ordered’, Citi said, “India has been under the weather but the recent fuel price (hike), FDI (foreign direct investment) and divestment reforms suggest the Doctor (Prime Minister Manmohan Singh) has finally/correctly diagnosed the problem, is administering the first bitter medicine dose (political opposition ahead: expect government to hold ground), though the patient (economy) will take time to improve. The direction/platform for policy making does appear to have changed. Equity markets should lead this change — though economic, investment and earnings growth could well lag these newer expectations.”
The firm also pointed out that India will maintain the target market multiple of 14.5x. The firm expects the Indian government to hold ground.
The measures were a “huge signal, symbolic of the government’s reform commitment and an endorsement of its recognition of the urgency to put the economy above politics, for now,” Deutsche Bank said in its note.
Foreign institutional investors (FIIs) have pumped almost Rs 66,000 crore into Indian equities so far this year, driving up the Sensex by almost 23% in the period.