Sensex to touch 33,954 by Sept 17, says CLSA

Lower inflation, developmental politics and rising domestic equity inflows suggest bright outlook over longer term

Despite the short-term pain, the Indian market is on course to deliver superior returns over the next two years, CLSA said in a detailed report on Friday.

“The long-term story for Indian equities remains intact, notwithstanding near-term earnings disappointments. Structural positives of lower inflation, demographics-driven developmental politics and rising domestic equity inflows suggest a bright outlook over the longer term. We expect 16-18 per cent corporate earnings growth over FY18-19, with the market delivering a cumulative 30 per cent plus return by September 2017,” CLSA analysts team, led by India strategist Mahesh Nandurkar, said.

 

The brokerage expects the benchmark 30-share Sensex to touch 33,954 in two years.

CLSA said as India Inc’s profitability is close to an all-time low and the worst might be over. It said stronger earnings growth would be visible from 2016-17. In the near-term, however, it said earnings downgrade might continue.

“India’s corporate earnings growth recovery has not matched market expectations. As a result, consensus has downgraded earnings estimates – a move that is likely to continue over the next few quarters,” the brokerage said.

 

In its report, CLSA said government programmes such as ‘Make in India’ are showing early signs of success. It also highlighted the shift in domestic household savings away from physical assets to financial assets.

“Efficient inflation management has driven households to move from physical to financial assets. This has led domestic investments to consistently outpace foreign inflows over the past 12 months. Domestic flows appear sustainable as current equity ownership remains at a low of three per cent of household balance sheets, with just five per cent of incremental flows into equity translating into $20 billion per year. This would serve to support equity valuations over a longer period,” said the report.