Madhu Kela of Reliance MF, Nilesh Shah of ICICI Pru AMC and Ajit Dayal of Quantum AMC believes Sensex will hit new high in 2010. I tend to agree with them. I had mentioned in my earlier post of Indian economy growing by atleast 8% in FY11 which I see as one of the reason for the index hitting new high as GST, Oil & Gas Discoveries and Global recovery boost the earnings of the Sensex companies. The added trigger could be the de-control of oil prices since the election is now over. Even if oil prices are not decontrolled completely but raised around the market prices, subsidy burden of ONGC will ease considerably and boost its earnings. ICICI Bank business should have undergone a significant change with focus on CASA,NIMs and ROE while bank’s lending should pick up after the consolidation. HDFC and HDFC Bank will continue with their 20%+ and 30%+ earnings growth. With the capital inflows coming back into the country, Real-estate players will start raising money through equities and pay back the debt to the Indian banks. This will ensure that the restructured assets have not turned bad. SBI & ICICI Bank will be the biggest beneficiaries. L&T might demerge some of its subsidiaries while its infrastructure business continues to deliver 25% earnings growth. BHEL too should continue to deliver 20-25% growth. US economy is expected to recover by the end of 2009 which should lead to increased spending by the US companies. Infy,TCS and Wipro will benefit from the same but the rupee appreciation will take off some sheen. Defensives like Telecom and FMCG should as usual deliver 15%+ growth . Metals will rebound as global economy recovers. Autos could be under stress as interest rates rise and commodities shoot up so growth could be around 10% in this sector.
If the global recovery happens by the end of 2009, Sensex FY11 EPS and FY12 EPS should be around Rs 1090 and Rs 1250 respectively which markets will start discounting by the end of 2010. At the one-year forward PE of around 17, Sensex does have a high probability of hitting new high. Inflation and Commodities prices remain a risk on the downside.