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The India Thread
energyi - Fri, 29 Dec 06 :
MARKET COMMENTARY•T
The SENSEX closed 2006, a year of high volatility in Indian stock markets, with a gain of 46.7 %, after gains of 42% in 2005, 13% in 2004 and 73% in 2003.
It has shown an average annual return of 43.5% over the last 4 years when the bull market started. Over a longer period of 16 years,since the economic reforms process started in India in 1991,the average annual return on the SENSEX has been 22.2%, vs 11.2% for the Dow Jones Industrial and 8.0% for U.K.’s FTSE 100.
The beta is higher for India being an emerging market compared to developed markets and the bouts of correction can be severe, but the market seems to recover and rise to touch new highs.•So, what is the forecast for 2007 and what are the assumptions, risks and sectors?Based on GDP growth of 8.7% for the year to March 31, 2007 and 7.7% for March 2008, earnings growth of 17-20% across sectors, agently rising interest rate scenario which does not kill credit growthand domestic demand, continued FII interest and supportive global markets the expected SENSEX band in 2007 should be 11,000-15,000.
So, what are the risks? They are, inter-alia:
1. Political instability (coalition Government / 4 state elections in 2007); 2. Monsoons failing;
3. Steep rise in interest rates;
4. FII risk aversion rising/favouring other markets;
5. Weak global markets;
6. External/unforeseen shocks (oil/wars/other).
Sectors favoured: Infrastructure (Cements, Construction, Capital Goods), Real Estate, Telecoms, I.T., Retail, Autos and Hotels.
The overall positive view of the India growth story should continue. The trend for more foreign acquisitions by Indian companies, and of higher values, should continue
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