Ambit Capital’s Star Analyst Saurabh Mukherjea who went on a BUY Recommendation as soon as P. Chidambram took over as the Finance Minister a year ago boldly set SENSEX Target of 23,000 by the end of FY 2014. However, things turned out to be mere Lip Service from the Government and Mr. Saurabh Mukherjea had to DOWNGRADE the BSE SENSEX Target for India from 23,000 to 21,000. The 23,000 target was premised on FY14 Sensex EPS of Rs1,350 (implied YoY growth of 14%) and a forward P/E multiple of 17.0x (in line with the six-year average).
Is Ambit Justified in its SENSEX Target ?
SENSEX EPS for FY 2013 stands at Rs 1184.
Ambit Estimates FY 2014 SENSEX EPS to be Rs 1243 and applies a forward P/E of 17 and arrives at 21,000.
However, if SENSEX EPS for FY 2014 were to be mere 1243, it implies a growth of 5% YoY and why should it trade at a high P/E multiple of 17 ? Like FII Research of Citi and Morgan rightly question the high valuation with weak GDP growth and SENSEX EPS. It would be difficult for the market to rally if the INR does not stabilise. Ambit is worried about the INR, but cannot understand the FX-related panic that seems to be prevalent in some quarters of the market.
In our opinion an EPS of Rs 1280 for FY 14 at a P/E of 12.5 is likely to get SENSEX Magic number of 16,000. The chance of this event to occur is likely around Parliament Elections [either before or after]
We remain SELLERS of Indian Equity on every rise as we have more than 90% of our wealth exposed to this market and thus De-leveraging the same and we may choose to re-enter if the market gives us an opportunity at 16,000 or lower levels when the Criminals & Thugs of India fight to get into the Parliament.