Deutsche pegs Sensex target at 18,000 by Dec

Although the domestic equities market is down in the dumps now, a bullish Deutche Bank today said it sees the Sensex offering a robust 14% returns, scaling the 18,000 level, from the current lows.

"We are setting our year-end Sensex target at 18,000, implying a 14% return from current levels. At our target, the Sensex would trade at a PE multiple of 13.8 times, a slight discount of 3% to the average multiple at which the market has traded over past 15 years," Deutsche Equities India strategist Abhay Laijawala said while releasing its India Equity Strategy 2012 Outlook here.

"With a near 19-month monetary tightening cycle expected to reverse in 2012, we believe the classical rate sensitives - banks (though the sector may have to cross the hump of bad loans in the near term) and real estate, together with infrastructure will be the key sectors driving the market in 2012," Deutsche Equities India Managing Director Pratik Gupta said.

We believe that the IT sector may provide investors with a strong hedge against continuing uncertainty in the domestic economy, Gupta added. The markets may bottom earlier than expected in February- March if RBI reverses its tight policy stance in the January credit policy, Laijawala said.

"March will be critical for the equity market as the clear direction will be visible. The forthcoming state elections will give the government the long-needed maneuverability to address many of the economic issues. We would also expect that the much-needed clarity on how the situation in Europe is likely to evolve will also be clearer by March," Laijawala said.

He pointed out that major worries for the domestic market are more international than domestic issues. "The continuation of policy paralysis, persistent inflation, and a severe crisis in Europe are key risks," he said.

Restoring confidence in capital markets is likely to be the strongest starting point for the government in rebuilding the faith of corporate India, he said. "We see equity investors at two ends of the expectations spectrum, with a dominant majority still nervous and negative on this market despite the precipitous fall and lower valuations," Laijawala said.