Credit Suisse sees Sensex gaining 9% in 2011

Leading global brokerage Credit Suisse India today said the Sensex, which is now trading at 15 per cent premium over the 2009 levels, will add another 9 per cent in 2011.

Describing the domestic market as the "most crowded" one among the emerging markets, the brokerage however said, the other emerging markets, especially Korea and Taiwan, will outperform the benchmark Sensex by offering up to 20 per cent returns considering their current lower valuations.

"The domestic is trading at a high premium of nearly 15 per cent now, though this is lower than the 20 per cent premium of early November, on the back of a record $29 billion foreign fund flows into the domestic equities, we see the Sensex giving a rather tepid return of 8.5-9 per cent by the end of the next calendar year," Credit Suisse Securities India Director Ashish Gupta said here while releasing Asia Equity Strategy: 2011 Outlook.

Since the country's economic recovery has been led by domestic consumption, we feel that export recovery in the cyclical economies of these two export-led North Asian economies of Korea and Taiwan will offer better returns in 2011. Therefore our advice and focus will be to move away from the South Asian economies to these North Asian economies," it added.

The Sensex which had scaled past a historic 21,000 mark last month, adding nearly 20 per cent over 2009 close, still commands one of the highest premium among Asian markets as the country has received 51 per cent of the entire capital inflows into Asia, excluding China, this year, Gutpa said.

It can be noted that in 2009, the Sensex was the star performer globally with a staggering 81 per cent return.

Even after the nearly 7 per cent fall in November following the telecom and loan bribery scandals, the domestic market is still trading up nearly 15 per cent boosted by overseas portfolio investments worth a record $28.7 billion year-to-date.

The country has seen a whopping $51 billion capital inflows into so far this year-its historic best -- out of which $billion are into the debt markets too, said Gupta.

The report further said Credit Suisse's focus will be the Korea and Taiwan they are trading cheaper than their Southeast Asian counterparts and hence look more attractive considering the fact the global industrial recovery has been bottoming out since the second half of 2010 and will continue to remain so.

The report pegs the Korean benchmark Kospi to rally 19 per cent in the new year, as an expected "soft-landing" of the global economy and attractive valuations may boost demand for the equities in Asia's fourth largest economy. It also the MSCI Asia Index, ex-Japan, may jump 20 per cent to 650 points in the next 12 months.

The Kospi has been the best performer among the world's 15 biggest markets this year, and may climb to 2,300 next year, said the report, which doesn't believe that the current political tension in the Korean peninsula will not go out of control and that the military tension will probably have a short-term impact on South Korean stocks.

Among the sectors that it sees outperforming in the country in 2011 include the industrials and capital goods, consumer discretionary sectors like automobiles and key durables, and telecoms, while it sees cement, steel and oil to be the laggards.