New bull run may begin this year, says Deutsche Bank

Sets Sensex year end target at 24,000

Deutsche Bank on Thursday said 2014 could be a beginning of a new bull market for Indian equities, on the back of a bottoming out of the economic growth and earnings cycle.

The European bank believes the pace of economic recovery and timing of the market rally could hinge on the election outcome.

“Most key variables influencing the equity market are at an inflection point — after a long gap — and may result in 2014 heralding the beginning of a bull market for India. Economic growth has bottomed, the corporate earnings cycle is seeing a successive quarter of recovery, investment starts are seeing a glimmer of hope,” said Abhay Laijawala, managing director and head of research, Deutsche Equities India.

The brokerage expects the benchmark Sensex to touch 24,000 (Nifty imputed target 7,150) by December 2014, about 15 per cent up from the current levels.

“At our target the Sensex would trade at 15.9 times FY15 EPS, which (is) a slight premium to past five-year average PE and with earnings growth of 15 per cent valuations to stay supportive,” said Deutsche Equities in its India strategy report.

The Sensex had gained about nine per cent in 2013, led by healthy foreign institutional investor flows of nearly $20 billion.
However, a large part of the foreign investor buying was offset by selling to the tune of $13 billion by domestic institutional investors (DIIs).

Laijawala said that the pace of selling by DIIs in 2014 could see sharp reduction---or even turn positive—due to the end in redemption pressures at insurance companies.

He said the large chunk of selling by insurance companies last year was on account of redemptions faced from unit linked insurance policies (ULIPs) issued in 2010, which is unlikely to see a repeat this year.

Stabilisation of the Indian rupee will be a big sentiment booster for foreign investors, believes Deutsche Equities.

“For FIIs, currency stability remains a core determinant of faith and the RBI has now emerged as a key enabler of investor confidence,” the report noted.

Laijawala also said the chances of an indecisive government in the forthcoming general elections are low and “the market would be agnostic to which party forms the government as long as it is stable.”