Sensex will hit 18,000 by Dec: Citigroup

Citigroup today said it expects the benchmark Sensex to reach above the 18,000-level by this December.

"Considering the macroeconomic situation and inflation which has shown signs of peaking, we believe the BSE index can be expected to reach the 18,100-level by December," Citigroup India research head  Aditya Narain told reporters here today.

"The deteriorating macroeconomic situation has been a significant headwind in the past for the domestic economy," Narain pointed out.

The Citigroup has revised downwards its inflation target for FY11 from 8.4 per cent to 7.4 per cent. "We have revised downwards our inflation target for FY11 from 8.4 per cent to 7.4 per cent and expect a sustained rise in interest rates over the year. Rates in FY11 should rise by 50 basis points as against expectations of 100 basis points earlier," Citigroup economist Rohini Malkani said.

"We expect GDP growth in the current fiscal to be around 8.4 per cent, she said.

Citigroup expects fiscal deficit to ease further if oil prices remain low for some more time. "The fiscal deficit situation pressures will ease further if oil prices remain low, allowing lower under recoveries in addition to the proceeds from the 3G spectrum auctions," Narain said.

While earnings revision momentum is slackening and earnings are vulnerable to lower commodity prices, growth-wise and confidence-wise India Inc is in decent shape, he added.

Since the Indian equity market is trading below its long-term averages, it is no longer looking expensive in absolute terms and returns from the markets are bound to rise, Citigroup's global equity strategy managing director Robert Buckland said.

"There is a battle between the top-down and bottom-up. Top-down risks refer to sovereign risks and fiscal consolidation which are the factors that are making people sell," Buckland said.

The ongoing debt crisis in Europe is a worry but its impact on the Indian equity market will be lesser as the fundamentals here are relatively stronger. However, since the global dependence on capital inflows has increased, it may raise the vulnerability and volatility of the market, Buckland added.