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Investments in Indian Equity and Research => India Stocks and Shares => Topic started by: sunil on November 05, 2012, 12:54:28 PM

Title: What's Priced in the Sensex at Current Levels ?
Post by: sunil on November 05, 2012, 12:54:28 PM
The Sensex is pricing in 12% nominal industrial growth.  The market is pricing in an 80bp rate cut by the end of F2013. The market’s P/B is implying a long-term return of 15%, which we think is a good return in the context of India’s equity risk premium.

Cyclicals look ultra cheap relative to defensives [FMCG, Pharma]. Correlations of stocks with the Sensex have declined since their January 2012 peak, warranting wider sector positions. Valuation (P/B) dispersions could also be peaking, and mean reversion is possible – implying narrower valuation gaps between cyclicals and defensives.

At the sector level, stock-picking opportunities persist in financials, industrials and materials whereas other sectors are demanding a macro
approach.