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| Citi raises year-end target by 17% to 18,100 |
| Bs Reporter / Mumbai May 27, 2010, 00:20 IST |
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In what could be the first major upgrade of the Sensex target after the euro zone crisis, Citigroup Global Markets has raised its year-end target for the 30-share index by more than 17 per cent. Citi, which has been advising clients globally to buy cautiously on dips, says with most macro-economic factors looking positive, India is no longer expensive.
The latest ‘India Equity Strategy’ report released by Citi has raised the December 2010 target for the Sensex to 18,100 from 15,400. According to Citi’s economists and emerging market strategists, Asia will see one of the lowest volatility levels arising from the euro zone sovereign debt crisis.
“Emerging markets have good fundamentals,” said Geoffrey Dennis, managing director and global emerging markets strategist, Citi Investment Research and Analysis (CIRA). “In emerging market countries, you will be able to make good money between now and the end of the year. Asia is the lowest volatility area of the world, and India is an important part of it,” said Dennis. “We will be 15 to 20 per cent higher by end of the year,” he added.
The optimism is shared by Robert Buckland, managing director and chief global equity strategist, CIRA, who feels the bailout package was a “game changer”.
“The size of the bailout package is almost 8.25 per cent of the euro zone’s gross domestic product. While we have downgraded Europe, we are advising clients globally to cautiously buy into dips, but only in good companies,” he said.
On valuations, Citi feels that India is no longer expensive and investors may look at a more aggressive portfolio. “India is trading below its long-term PE (price to earnings) and PBV (price to book value) averages; it is no longer expensive in absolute terms, and returns are looking up,” said Aditya Narain, who heads Citi’s India research in the report. Narain, however, added that there was “some amount of risk” as Indian markets were highly dependant on global flows. “We see the environment supporting average multiples, which suggests 8-10 per cent upside from here,” adds the report. “More aggressive portfolio with OW (overweight) on financials, capital goods, energy and auto; UW (under weight) on information technology, utilities and materials,” notes the report. The financial major also believes that the macro-economic factors have turned for the good, leading to a “significant headwind for the Indian market/economy”.
“We see a possible turn with: a) inflation showing signs of peaking, b) rate rise trajectory easing domestically and globally, and c) fiscal strains easing with oil prices and 3G auctions. It is not a tailwind yet; rates will still rise and global capital flows could be disruptive (equities, currency and liquidity), but the macro’s direction could well be turning,” explains the Citi report.
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