American Financial Crisis, Historically High Oil Prices and the worst factor for Indian economy is Business Inflation – The rising cost of doing busines, together have all triggered the downgrading of Indian Equity Markets by Citigroup. In a report released just minutes ago, Citi which had BSE Sensex Target of 23,950 to 25,000 has reduced it to mere 18,500 by March 2009.
Citi had set an ambitious target of 23,950 to 25,000 in Jan 2008. Our Analyst had then said, In our honest opinion, we feel it is highly absurd valuation for mere 19% growth in FY09. Incidentally, today’s BusinessLine Quotes Citi’s research Team as the best in India – and our team should be a step above Citi, right ? Or maybe lets blame it on Citi’s ex-CEO Ratnesh who is now with Ananad Rathi 😉
According to Citi, India’s growth has pulled back quite sharply; 2008 (March end) GDP growth at 8.7% is lower than the previous year, and Citi Economist forecasts 2009 GDP growth at 7.7% while market consensus ranges from 7-7.5%.
The macro has clearly been challenging – inflation has reared its head up high, markets’ expectations of rate cuts have been abandoned (and with the RBI pulling out liquidity through the CRR, banks are biased toward raising rates). In addition, global uncertainties remain high while the capital markets – a contributor to market momentum and mood – have come to a grinding halt.
India’s earnings momentum has been slowing; expectedly, since 2QFY08, and we expect that trend to continue. This is consensus, and follows four years of strong and rising earnings momentum; a combination of operating leverage, low interest rates, accelerating growth environment and strong asset prices.
The sharp market fall over 2008, has had one defined victim, the “retail investor”. This investor – hard to categorize, in numbers, segment or scale, has clearly been hurt and a large segment of these retail investors have exited the markets, for now.
Citi has now set a target of 18,500 for March 2009 based on ROE/ PBV incorporating embedded asset values.The market trades at 16.4x FY09 P/E, in-line with its 18-year average.