Sensex at 1-month high on Morgan Stanley forecast

Sensex at 1-month high on Morgan Stanley forecast

Mumbai: India’s benchmark stock index rose to the highest level in a month as Morgan Stanley forecast a 19% jump in the benchmark index this year following losses that dragged valuations lower.

The Bombay Stock Exchange (BSE) sensitive index will reach 22,100 this year, Morgan Stanley analysts led by India managing director Ridham Desai wrote in a report on Tuesday. “We remain buyers of Indian equities with a 12- to 18- month view," Morgan Stanley analysts wrote in the report. “We are focused on stock-picking since we believe the macro effect has peaked," the report added.

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The Sensex rose 105.53 points, or 0.6%, to 18,608.81, the highest level since 2 May. The gauge dropped 3.3% in May, the most since the 11% slump in January. The S&P CNX Nifty on the National Stock Exchange advanced 0.6% to 5,592. Its June futures ended at 5,592.50. The BSE-200 Index gained 0.5% to 2,313.99.

The 30-stock Sensex has lost 9% this year amid concerns that higher borrowing costs will hurt corporate earnings. Equities on the measure are valued at an average 15 times estimated profit, down from 21.5 times in March 2010, last year’s high. The MSCI Emerging Markets Index trades at 11.3 times earnings.

Valuations are looking attractive, especially on an absolute basis, and for the broader market, the report said.

Rising consumer prices and a 42% gain in oil prices the past year have forced the Reserve Bank of India to raise interest rates nine times in 15 months.

Some 33% of the companies in the Sensex reported profits that missed analysts’ estimates in the March quarter, compared with less than a quarter that did so last year.

“We expect inflation to moderate over the next three months," Sreesankar Radhakrishnan, senior vice-president at Tata Securities Ltd, said in a phone interview. Demand-side inflation may cool off on declining global growth, while supply-side inflation is likely to moderate as agricultural production picks up in the June-September monsoon season, he said.

India’s economy expanded 7.8% in the three months through March, the slowest pace in five quarters, according to a government report on Tuesday. The economy expanded 8.5% in the year ended 31 March, a growth that is still the fastest after China among major Asian economies.

The growth figure was a bit of a surprise, but the strong sequential momentum suggests there is no need to panic, Leif Lybecker Eskesen, chief economist for India and the Association of Association of Southeast Asian Nations at HSBC Holdings Plc, wrote in a report.

State Bank of India rose for a fifth day, climbing 1.39% to Rs2,329.65. That’s the longest winning streak since 30 March. NTPC Ltd rallied 3.43% to Rs174.75, its biggest gain since 10 May.

Bharti Airtel Ltd advanced 1.95% to Rs381.45, its highest close in a month. Reliance Communications Ltd, the second largest mobile phone operator, rose 4.81% to Rs93.70, a fourth day of gains.

Overseas investors bought a net Rs119 crore ($26.5 million) of Indian equities on 30 May, paring total outflows from equities this year to Rs1,900 crore, according to data on the website of the Securities and Exchange Board of India.

India’s economic growth and corporate earnings attracted foreign funds to buy a record $29.4 billion of domestic stocks in 2010, lifting the Sensex by 17%.

Graphic by Naveen Kumar Saini/Mint