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Bulls to push Sensex to higher peaks, feel analysts

Sensex touched new peaks during 2005, but even better times are in store for Dalal Street, say analysts.

business Updated: Jan 03, 2006 19:08 IST

India's key stock market index touched new peaks on 59 trading days during 2005 thanks to Foreign Institutional Investors injecting close to $11 billion, but even better times are in store for Dalal Street, say analysts.

Naresh Kothari, Edelweiss Securities Institutional Equities Head, said: "Valuations do look stretched. But FIIs are looking for the long term. In five years from now, this will be a 20,000 index and that is a lot of return on investment."

The markets went up almost 30 per cent without a breather. The parametre to watch for is liquidity. The forward p/e of index stands at 17 times 06 earnings and 15 times 07 earnings. EPS, 06 is at Rs 550 and that for 07 is at Rs 615, he adds.

Kothari, however, remains bearish on the prospects of steel stocks, besides being neutral on the impact of interest rates on the market.

"Steel is one area where the demand is going down and could go down. China may turn a net exporter of steel by next year and once that happens, the prices are going to come down," he says.

"One should expect a modest return of 15 per cent. Corporate earnings are supposed to grow by 15 per cent and markets are always supposed to imitate corporate earnings due to which we think that it should grow at such levels," he says.

"What feel I am getting from our technical anaylsts is that markets should be somewhere around 10,000 before you see any major correction. Then we could see a correction of 15-20 per cent and then the markets would really shoot up after that," Sonthalia adds.

Despite being bullish on the capital goods and banking sector, Sonthalia feels that interest rates would have a bearing on FII investment flowing into the Indian markets.

"You have clear visibility in terms of order book position as far as capital goods is concerned primarily due to infrastructure growth, capital expenditure cycle and that is why I think capital goods would be outperforming. Banking is an another sector that would be doing well because funds are going into capex plans," he says.

Interest rates would have a major role to play in terms of currency fluctuation and so, once the interest rates harden, we may see some outflow, he said adding, that there is a feeling that interest rates would be more than 8 per cent on the higher side, he adds.

Andrew Holland, Executive Vice President of DSP Merrill Lynch is of the opinion that market rally is going to be sluggish stymied by lower corporate earnings.

"This year, company earnings grew at around 20 per cent and next year we expect a growth of only around 15 per cent, which means, the market rally is going to be a bit sluggish," he says.

However, deficit at 2.5 per cent of Gross Domestic Product (GDP) is a matter of concern and also firming up interest rates. A lot depends on budget and liquidity, he adds.

First Published: Jan 03, 2006 11:48 IST