Mumbai: Bombay Stock Exchange’s benchmark Sensex index had an estimate cut by 20% at HSBC Holdings Plc. on concern that central bank measures to tame inflation will slow growth and earnings downgrades will crimp demand for equities.
HSBC lowered its December estimate for Sensex to 14,000 from 17,500. It also reduced its end-2009 target by 29% to 15,000. The index closed at 13,349.65 on Tuesday, down 176.34 points or 1.3%.
“There is risk of the price-earnings multiple contracting in the case of further monetary tightening,” Garry Evans, Hong Kong-based Asian strategist at HSBC, said in a note to clients. “Analysts have yet to meaningfully downgrade earnings per share forecasts; this may happen after quarterly results are announced later this month.”
The Reserve Bank of India raised its benchmark interest rate twice last month and signalled it is prepared to act further should prices gain at a faster pace.
Policy makers are scheduled to meet on July 29 to review interest rates. Inflation rate for the week ended 21 June was 11.63%. HSBC suggests avoiding financial companies and utilities and buying industrial and telecommunication shares.