Sensex seen rising another 12% by Dec

The BSE benchmark Sensex is set to gain another 12 per cent by the end of 2009, taking its rise for the year to 60 per cent, as an economic revival boosts corporate earnings and attracts liquidity, a Reuters poll shows.

The results from the latest survey of 16 analysts taken after the government tabled a budget that elicited no surprises but a thumbs-down from financial markets the day it was presented, are virtually unchanged from a poll taken on May 22.

The benchmark 30-share BSE index will reach 15,500 points by December-end, up from its Tuesday close of 13,853.70, the median forecast showed.

Of all the 16 major world stock market indexes polled quarterly by Reuters, the expected 60 per cent gain for the year as a whole was topped only by Russia, where shares are expected to end the year 76 per cent higher.

The highest forecast had India's benchmark index jumping 30 per cent to 18,000 by the end of the year, while the most bearish forecast predicted a decline of 24 per cent to 10,500.

The index closed 2008 at 9,647.31.

"I expect the market to be muted on the back of expectations for a better fiscal-year 2011 but poor fiscal-year 2010," said Phani Sekhar, a fund manager at Angel Broking.

"Liquidity will determine our course in the near term, but a revival in earnings will be the catalyst for the market to go up."

Six of the analysts forecast the index would end 2009 below its current level as short-term concerns such as expensive valuations and economic uncertainties weigh on the market.

Still, the general view was optimistic on the longer-term prospects, despite disappointment that last's week budget did not include reforms such as stake sales in state-run firms and lifting of foreign investment limits in the insurance sector.

"By the end of the year, quarterly results would have confirmed we are back on track in terms of corporate earnings, and reforms such as divestments may have taken place," said Ambareesh Baliga, vice president at Karvy Stock Broking.

The median forecast of 15 analysts was for a 23 per cent rise from current levels to 17,000 by the middle of 2010.

EXUBERANCE

The July 6 budget was laden with spending for farmers and the poor, a core constituency of the government, funded by a record borrowing and an increase in the fiscal deficit to 6.8 per cent of GDP, the highest in 16 years.

The disappointment saw the market fall to its lowest since the unexpectedly strong re-election of Prime Minister Manmohan Singh's coalition in mid-May raised hopes of reforms to boost sagging economic growth and reduce a yawning fiscal deficit.

Investors were also rattled by a weak start to monsoon rains, crucial for the domestic demand-led economy, with the benchmark index losing 9.4 per cent last week, its biggest weekly fall in eight months.

"There was too much exuberance in the market, and that had to be corrected," Baliga said.

But the monsoon has started to pick up, and analysts say investors need to be patient as key policies are increasingly made outside the budget process.

"Longer term, we are on track for an economic recovery and the monsoon rains are looking much better now than over the past three or four days, and that is giving investors a lot of confidence," Baliga said.

Spending on rural areas is expected to generate new demand and broaden economic growth, and with the global economy also showing signs of healing, healthier corporate earnings growth is widely expected over the next couple of quarters.

Analysts said the oil and gas, power and metals sectors should outperform on the back of rising demand, but were wary of defensive sectors such as healthcare and consumer goods.

A jump to 15,500 points would almost double the market's 2009 low in early March, and so better earnings growth would help allay worries the market is expensive after its run-up.

The main index trades at 15.3 times one-year forward earnings, higher than benchmarks in other emerging markets such as South Korea, Indonesia and Brazil that trade at multiples of 12 to 12.5.