Sensex at 30,000 by December End? Yes, Say Analysts
Indian stock markets are on a tear again, with the Sensex rising around 10 per cent since October 16. The Sensex edged past 28,500, while the Nifty overtook 8,500 on Monday. There's a reasonable chance that the Sensex will take out the psychological 30,000 mark by the end of the year, analysts say.
Independent analyst Sanjiv Bhasin says the Nifty is in unchartered territory and above 8,500 it sets itself up for a year-end move of 8800, which also means that the Sensex can hit 30,000 by the end of 2014. (Read the full story here)
The latest leg of the rally was triggered by reform announcements in the energy sector (October 18 and 20), but it gathered momentum tracking developments across the globe. Here are three reasons why Indian stock markets may continue to climb higher:
1) Global liquidity: On Friday, the People's Bank of China cut interest rates for the first time since July 2012 to re-energize its economy, which has slowed to a five-year low of 7.3 per cent. The easing in China comes on the back of a monetary expansion announced by Japan on October 31. Japan - the world's third largest economy - has slipped into a recession and the government delayed a tax increase to help consumer spending last week. The 18-country eurozone economy, which is facing the prospects of weak growth, low inflation and high unemployment, is drawing up its own stimulus plan. The slowdown in global growth has increased hopes that the US Federal Reserve will delay raising interest rates.
These developments augur well for India, which is the best-performing emerging market (EM) year-to-date. Associated Press, quoting analysts, says value investors, turned off by high valuation of US stocks (trading at 16 times their expected earnings per share over the next 12 months), can find better bargains abroad. European stocks are attractively valued at 13.5 times, but the eurozone economy is struggling. China's economic growth is slowing and Russia carries significant risks, the agency adds.
2) India best bet among EMs: India is a destination of choice because growth has bottomed out and reforms are likely to gather pace as the Narendra Modi government prepares to present its first full Budget in February.
"India looks well placed among EMs given the structural reforms being undertaken by the new government - more efficiency, total factor productivity, balance shift from public to private sector, deepening of financial markets," said George Magnus, senior independent economic advisor of UBS.
This optimism is reflected in overseas investment data as well. Foreign institutional investors, who had turned sellers of Indian equities October, have pumped in close to Rs 20,000 crore in to domestic stocks in the first three weeks of November. Year- to-date, FII investment in debt and equity have totaled $40 billion.
3) Falling crude prices: Analysts also point to weak crude prices, which can plunge to $60 a barrel if OPEC does not agree to a big output cut next week, for the sustenance of the rally in Indian markets. Global brokerage Nomura says every $10 per barrel fall in oil price can boost India's GDP growth by around 0.1 percentage points, lower CPI inflation by about 0.2 per cent and improve current account balance by 0.5 per cent of GDP.