Citi India sees Sensex at 30,000 mark by March 2017

Oct 17, 2016, At time when concerns over weakening health of the global economy are weighing on equity markets the world over, Citi India has projected BSE benchmark Sensex to hit the 30,000 mark by March 2017.

From Friday’s closing of 27,673, this would mean a 2,623 points, or 8.4 per cent, jump in five-and-a-half-months.

Abhinav Khanna, who heads equity research of Citi India, cited a number of factors which can lift the index to this level. One among them is earnings. Khanna expects September quarter earnings to be better than that of June quarter. Besides, the Citi group expert believes RBI may go in for another 25 basis points rate cut in December. That said, he expects the domestic market to witness high volatility over the next two months.

Here’s a list of four sectors that Citi is bullish on:

Cement: Khanna cites two reasons why he is bullish on the cement sector. He said most things are going in favour of the cement makers, and top four players now account for over 50 per cent of the total capacity. This has helped firm up prices. Besides quality of management in cement companies, their balance sheets and cash flows look promising now.

“Most companies, especially largecap ones, are net cash companies. They have been giving you the growth as well. It is not just about industry structure and pricing and quality of companies. It is about growth as well. One theme that I like is rural infrastructure. That is something which will further help cement companies log the next leg of growth,” Khanna said.

Financials: Citi group has preference for retail banks over corporate-heavy banks, given the chances of RBI maintaining its accommodative stance on interest rates. As is the case with most brokerages, Citi prefers private sector lenders, as it believes they are the ones which will gain market shares going ahead and bottoming out of asset quality concerns is what is expected to drive the rally.

He said even though valuations of private lenders are not cheap, as long as they continue to deliver on the earnings front, even if the multiples remain constant, earnings delivery will ensure that the stocks compound at 15 per cent to 120 per cent earnings CAGR over the next few years.

“Within the private sector, there could be changes in preference as investors may prefer retail heavy banks at some point. At some point when risk-taking increases, they may move on to the corporate-heavy private sector banks,” Khanna told

 

Pharma sector: Marketmen have mixed views on the pharmaceutical space. But Citi group believes the market will bet on only those sectors which will deliver on earnings front and pharma is one among them.

“There have been multiple issues including USFDA concerns and generic pricing in the US, but we feel Indian pharma companies have the right ingredients to do well there. There are a good number of companies in the pharma space in India which have got very long ANDA pipelines, which will contribute to revenues over the next few quarters and years,” Khanna said.

Energy: Khanna did not elaborate on the sector, but said he is quite positive on the energy sector. It has also done well so far this calendar, he said