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Citi sees Sensex at 31K by Dec’15; expects gradual rerating

The News International Team

Brokerage house Citi has raised its December 2015 Sensex target by 16 percent to 31,000, led by an uptick in earnings growth.

“You are now beginning to hear the rumblings: ‘little real reform happening, nothing’s changed on the ground, no loan demand, India could do a Japan, etc’. But given an eco-corporate up-cycle, macro tailwinds (inflation, oil) and increased risk appetite (business and consumer), India should generate earnings growth-led returns,” Citi said in its note to clients.

“India’s earnings expectations have ticked up (+4-6% over last one year), revisions cycle is now positive, leads the EM pack and will be the markets’ focus. We see moderate earnings upsides (Banks, Pharma, Energy, Cement, Auto), better margins than sales-growth prospects and, at an expected 16% FY15-17 CAGR (compounded annual growth rate), a supportive cycle, with some upgrade possibilities,” the note said.

The brokerage is bullish on pharma, cement, banks and oil, underweight on metals, FMCG, power, and neutral on auto, IT and capital goods.

Cit does not see an immediate re-rating of India’ current price earning multiple of 15-16 times given “lower return structure, more moderate growth upside 2003-07), high exposure to global macro/yields and high embedded government expectations.”

“While we do believe you might need to wait patiently for India’s economic and market cycle (and it could get uncomfortable at times), it should be worth the wait,” the Citi note.

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