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HSBC Underweight on India But High Sensex Target

September 26, 2013

hsbcThe Fed’s decision to continue supporting the American Economy without tapering led to a 11% rally in Indian Equities even though the BANKEX has corrected by 8% since then. HSBC is worried about India’s weak Forex Reserve, upcoming general elections and in this backdrop rates India as an UNDERWEIGHT for Equity Investors.

Indian Rupee
As Raghuram Rajan took steps to contain the rupee, INR/USD has been up 7% since he assumed office earlier this month. India needs to shore up its forex reserves in the meantime. In our view, FCNR deposits could add c.USD10bn, and another USD4-5bn from banks’ overseas borrowings would bolster the forex reserves

Election Overhang
This leaves probably the winter session in Parliament before a vote-on-account budget session in 2014. Although the Food Security, Land Acquisition and Pavement Dwellers Bills have been passed, expect further populist measures on minimum support prices of crops

HSBC Sensex Target
According to HSBC, FY14 EPS growth estimate at 8% appears limited, but looks high for 14-15% growth for FY15e EPS. So from FY 13 EPS of Rs 1180, according to HSBC FY 15 EPS will be around 1467 and 14x forward earnings they arrive at a figure of Sensex target 20,700 for Dec-2013.

Our Take
Without any CAPEX it is impossible for the Industry to reach high earnings as estimated by HSBC and on a prudent note SENSEX Earnings could be around 1400 for March 2015 and SENSEX should trade around 17,000 to 18,000.

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