India March 2011 SENSEX Target 20,000 – UBS

UBS – leading financial institution and also the holder of Swiss Private Banking accounts continues to be bullish on India calling it a Tiger 🙂

India’s economy could be entering a golden period – we expect real GDP growth of 8-9% pa for the next 10-20 years. The stock market is relatively liquid (US$5bn average traded value) with several diversified sectors. Penetration levels for most products and services are relatively low, implying ample room for high-growth investment ideas. Attractive demographics and a high savings rate imply that demand for equity stocks and mutual funds is likely to multiply in the next 10-15 years.

Consumption, Infrastructure and Equity investment led Growth – the consumption boom, driven by low penetration, attractive demographics, and strong economic growth. Infrastructure investment of US$2.5trn in the next 15 years. Greater potential demand for equities, as India’s relatively high household savings could be channelled into the equity markets.

March 2011 Sensex target of 20,000 is based on a forward PE multiple of 14.9x on FY12E EPS [~ EPS of SENSEX for FY2012 is INR 1333.

Sensex earnings CAGR of 12% in the next 15-20 years. Assuming a long-term average PE multiple of 15x, the Sensex could reach a level of 100,000 by FY25