The declining likelihood of a fractured mandate in the national election 2014 has made the currency stable, and other key indicators like improving macro has lead Deutsche analysts to believe that it may be time to start focusing on domestic recovery/reform plays. It may be too early to expect any sharp economic turnaround, we believe that the worst is over.
With no reversal in the policy on calibrated diesel price hikes – as many had expected – we believe that the regulatory environment for diesel pricing has seen a structural change. Select PSU banks and state-owned oil companies, which witnessed severe underperformance in 2013, look poised for a rebound in 2014.
Sensex is currently trading at 14.6x 1 yr fwd PE. At the target multiple of 24000, Sensex would trade at 15.8x FY15E EPS- largely in line with the average of the past 5 years. [BSE SENSEX EPS will be at Rs 1518 for FY 2015]
Deutsche’s Top Picks are Axis Bank, ICICI Bank, PNB, BoB, L&T, Ultratech Cement, Shree Cement, Powergrid, RIL, HPCL and BPCL.
The record selling by domestic institutional investors (DIIs) witnessed in 2013 is showing credible signs of tapering off. After posting a record US$13bn outflows in 2013, DII flows in Feb’14 turned positive for the first time in 6 months, albeit at a modest US$44mn.