Citi Research introduces June 2016 target of 35,000 for Sensex

 Keeping its faith in the Indian markets intact, Citi Research has introduced a target of 35,000 for Sensex by June 2016. The firm, however, marginally cut its December 2015 target for Sensex to 32,200.

“We adjust our market target to 32,200 (from 33,000) for December 2015, as we factor in earnings cut, but partly offset by a higher market multiple, on account of lower rates and the quality of earnings,” Citi Research said in a recent note.

“We also introduce a Jun 2016 target — 35,000, also benchmarked off 17 x 1 year forward market earnings. Our equivalent Nifty targets are 9,760 for December 2015 and 10,600 for June 2016,” Citi added. In the note, Citi goes on to say that growth expectations could be at risk but a measured pick up is certainly underway.

“We believe that India does run some growth expectation risks: and disappointments in absolute levels of growth might not be over. But that we believe, in large measure, due to businesses focusing on the quality of growth/investments — the returns, the risks and its execution. This would effectively imply that growth/investments in absolute terms could be a little slower in coming than expectations,” Citi said.

But, it would also mean higher returns for businesses, and eventually higher earnings. That investment activity is showing signs of picking up, with new investments and stalled projects starting, suggests a measured growth pick-up is underway, Citi added.

Citi also believes that domestic flows into the Indian markets may sustain going forward. “We believe significant under-ownership of equities by domestic savers which was less than two per cent of incremental flows in FY14, a strong equity market and a better developed/regulated domestic mutual funds and insurers should sustain domestic flows. This has been the case with mutual funds since the elections in May 2014, but with the insurers becoming net buyers and inflows picking up pace for market-linked savings — the tide could well have turned,” Citi said.