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Credit Suisse: Sensex may see an 8 per cent increase by December 2011
December, 02nd 2010

The BSE Sensex is likely to see an 8 per cent increase from its current levels by December 2011, according to Credit Suisse.

The company's target for the Sensex is 21,600 by that time.

Credit Suisse is positive on sectors such as consumer discretionary and telecom, said Mr Ashish Gupta, head of research, India, Credit Suisse.

The company is bullish about the stock markets and sees a 20 per cent upside on the MSCI Asia (ex-Japan) next year, Ms Sakhti Siva, Head of Global Emerging Markets and Asia Pacific Strategy, Credit Suisse, said.

She said that investors should look at putting their money into markets such as Korea and Taiwan and book profits from countries such as India and the Philippines.

Markets like India, where the domestic growth is very strong, have performed very well so far. The valuations of these markets are expensive now and they are trading near their 2007 highs. Investors should now switch to more cyclical markets, said Ms Siva.

Relative to the Asia (ex-Japan) region, the Indian benchmark index is trading at a 22 per cent premium, whereas Korea is trading at a 30 per cent discount, she said. The Indian market is also a very crowded market. Foreign flows are coming into the markets here because the structural story of the country is good.

Risk factors

The risk factors of investing in India are huge capital inflows, inflation and rising commodity prices, said Mr Gupta.

The Indian capital markets have attracted disproportionately high foreign flows. There is a risk of moderation of these flows. Since domestic institutions have been net sellers all along, it is the FII flows that have sustained the markets, he said.

Credit Suisse said that this year FIIs have been net buyers of Indian equity for $4.2 billion, while they have put a total of $7.2 billion in Asian markets. This is 50 per cent of the total FII flows into the region. India's weightage in the MSCI Asia (ex-Japan) is 20 per cent. This is 2.5 times its weightage, said Ms Siva.

Mr Gupta said the FII flows will not turn negative, though they may moderate. Even after the numerous scandals in the country, they have not pulled out. This is because there seems to be no systemic risk involved. Next year, FII flows into Asia will be better than in 2010, but India's share in it might come down though not in absolute terms.

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