Bullish RBS sees Sensex at 19500-20000, 15-20% gain in 2012

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Indian market has shown a massive rally in January and there are still hopes building up. Most experts feel that India is gaining back its strength to charm investor with positive triggers expected by the Budget and state elections results.

Devesh Kumar, Head of Equities, RBS India is betting big as he is expecting around 15-20% gain over this year with the Sensex touching 19,500-20,000.

In an interview to CNBC-TV18, he said, "The second half this year is where the news flows and the numbers will start showing improving signs. I don't think there will be a sharp or big correction because if you look at macro side then gradually numbers are going to build up," he explains.

Below is the verbatim transcript of his comments. Also watch the accompanying video.

Q: What have you made of rally and how much upside do you see in the near term?

A: I think this rally is driven by liquidity in the region. If you look at Korea and other countries, there also markets have moved up. In India I think post closure of parliament session in December no big negative has come.

On the contrary if you look at the measures announced by SEBI and others on either including the market transparency or adding some new instruments or new class of investors - all that is going to be long term positive All this has created some positive buzz. So I think this rally in our view is driven by liquidity flow in this region.

We were of the view that second half this year is where the news flows and the numbers - that part will start showing improving signs. So that's where this rally is.

We would expect that this momentum will not be continued and probably there could be as election results come out, as budget session opens, and if liquidity doesn't flow in this way then there will be some correction. But having said that, for the year end we are looking at around 19,500-20,000 and that's where we are bullish in this year and we expect around 15-20% gain over this year.

Q: From this level of 17,500 even if there is a correction - where would you set the base for the year?

A: I think the main driver for this correction will be external factors like euro-zone has still not stabilised and we will watch for some more news flows from there. This year the trading zone should not be below 15,500-16,000.

I don't think there will be a sharp or big correction because if you look at macro side then gradually numbers are going to build up. Therefore we feel that most of the negatives, local ones are already priced in.

Q: As you were saying it is all because of the money. What have you heard over the last few weeks about where is the money coming from? Is it a lot of ETF money? What can you tell us from what the dealing desk is telling you on that?

A: Many funds had opened for subscription in December-January. I think this is some part of new money and it is a blend of both ETF and this together. We have seen some domestic selling also in recent times.

So it is foreign money driving the market and domestic cash being generated which is healthy because when this foreign money pulls out then there will be domestic money stabilising the markets so that's very positive.

Q: Do you think it is possible that the market might have entered a bull phase after a bear market of say about 14 months?

A: We feel that the trend is changing this year and it is driven by fundamentals. If you look at earnings or if you look at macro numbers, we feel that on all fronts even if there is no big policy announcement, based on base effect, inflation and interest rate cycle there will be a reconciliation of these numbers and therefore I think worst is behind us.

Only issue is there will be lot of volatility and sometimes market will discount all the future good news too early and then there will be correction. But we feel that this year second half will be better. I think in case market runs up ahead in anticipation of all the reconstruction of numbers then the index will stay at some level for some time. There will be lot of M&A and fund raising exercises which will begin second half onwards this year. So that's what we feel at this point of time.