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Paul Noronha

A caretaker washes the statue of a bull in Mumbai on Monday with the BSE building in the background. Credit Suisse set a conservative target of 17,000 for BSE Sensex by mid-2010. –

Our Bureau

Mumbai, Aug 3 Credit Suisse India sees further upside in the benchmark BSE Sensex only by mid-2010 due to higher corporate earnings and the RBI’s quantitative easing of policy interest rates.

The investment bank has set a conservative target of 17,000 for the index by mid-2010.

However, it expects a correction by December 2009 because of factors such as monetary tightening, reform disappointments, primary market issuance pressure, and fiscal deficit.

“While the market has mostly focused on the cash reserve ratio (CRR) and repo/reverse repo rate components of the Monetary Policy, the monetary support for the economy and what is flowing into the market should be looked at more comprehensively,” Mr Nilesh Jasani, Managing Director, Equity Research, Credit Suisse Securities(India) Private Ltd said.

Even though the CRR cuts have long stopped, this liquidity injection continues by other means such as open market operations and MSS (Market Stabilisation Scheme) bond conversions.

“Since September last year, the RBI has facilitated a total primary liquidity injection of Rs 5.61 trillion, equivalent to 11 per cent of GDP” said Mr Jasani.

Mr Jasani expects the RBI measures to play out for at least the next two months.

The RBI is likely to resort to monetary tightening around the end of calendar year 2009 when consumer price index and whole-sale price index go above 6 per cent and industrial production growth touches 10 per cent, Mr Jasani said, adding this might lead to a correction in the market.

“The revised upward Sensex target (from 13,500) to 17,000 level by mid-2010 comes amid regional and global index target upgrades from Credit Suisse strategists based on corporate earnings forecast,” Credit Suisse’s Indian Financials analyst, Mr Asish Gupta, said.

Credit Suisse maintained positive outlook on real estate, commodities (materials) and private sector banks in both short- and long-term portfolios.

In the past two-three months, 25 per cent of the inflows into the Indian equity market money had been into exchange traded funds (ETFs) and, going forward, more inflows were expected into the ETFs, Mr Jasani said.

“The inflows into the ETFs were not backed by fundamentals but news flows,” he said.

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