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Indian Equity Valuations to Contract Reflecting Lower GDP Growth – Sensex Target

August 28, 2013

JP Morgan India Valuations - Sensex Target 2015Citigroup Equity Analysts were the first to come out and boldly question Why Indian Equities which are already overvalued compared to Emerging Economies must Trade at a higher P/E of 14 when the Policy Paralyzed and Lip Service Government is delivering the Worst GDP Growth of Decade ?

Today, JP Morgan Analysts have seconded Citi Opinion in a research report released just a while ago. Their valuation model suggests that there could be downside of another 5-7% before value begins to emerge. Their model suggests a 12-month forward PE multiple of 12-13x if GDP growth were to remain at 5%-6% over a two–three-year time period. Relative to peer group in EM, particularly the BRICs group, Indian equities continue to sustain a healthy premium of about 30%. Indian equities likely deserve to trade at a premium to EM for structural factors. But, we believe current valuation premia leaves no scope for expansion.

Have a look at the BSE SENSEX EPS Chart between FY2013-15 [Expectations]
Sensex-EPS-Target

How to interpret the above Chart ?
FY2013 Reported SENSEX is 1190 [I thought it was 1170] Anyway, lets assume 1190 for the purpose of Calculation. If SENSEX Companies EPS Grows at 10% YoY for FY2014-14 & FY2014-15 then FY15 SENSEX EPS will be 1,440. 1440 * 12x = 17,279 becomes FY 15 Sensex Target.

For FY 2013-14, SENSEX EPS will be Rs 1309 * 12x = 15,708 [~16,000 the Target we set as the Magic Number]

With the overhang of Elections and Supreme Court not letting the Thugs in the Government to Loot the Natural Resources of India [Spectrum, Mines, Land etc] we also expect a phase of sub 5% GDP Growth for India until Sanity returns to our Dirty & Arrogant Politicians.

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