Sensex to see 25K by 2008-end: SSKI :: Reliance Energy :: MARKET OUTLOOK :: Pathik Gandotra ,SSKI IDFC ,Sensex,IT ,IT,telecom,PSU bank, infrastructure
Speaking to CNBC-TV18, Pathik Gandotra of SSKI IDFC said that corporate earnings are likely to grow at 18% for the next 2 years. The Sensex is likely to go to 25000 by 2008-end, at 18 times forward earnings, he added.
RIL looks well priced at Rs 3100, Gandotra said. The company is unlikely to unlock value from gas business, he added.
Gandotra is very bullish on Reliance Energy . He is neutral on IT since the slowing US economy will weigh on sentiment, he feels.
Excerpts from CNBC-TV18's exclusive interview with Pathik Gandotra:
Q: What are you positioning yourself for 2008 in terms of strategy and sectors?
A: We believe that the sustainable economy growth will continue for the next two years, which will rub off very strongly on corporate earnings which we believe will grow 18% over the next two years but domestic cyclical is growing at 23%.
We also think that the key things that will play out will be based on infrastructure, financial services and the empowered Indian consumer. The sectors that we clearly like are infrastructure, within the financial services we like all of them, we like banks, insurance companies and finance companies and within the income demographic plays we like telecom, real estate, retail and media; these are our key overweight positions for the year.
We believe that the index will go towards 25,000 by the end of the year at which time it will still be valued at 18-18.5 times earnings because we also believe that there is a huge latent value in the index which is from non-consolidate subsidiaries, which will contribute about 16% of the total value and that I believe, is what maybe the market is not totally factoring in.
Q: What about power as a subset of infrastructure in 2008?
A: Power as a sector will do well. It is just that there is a lot of paper supply coming in the sector. But I think the players who have their fuel linkages tied up are the ones that will benefit more than the others.
Q: What is your take on Reliance at SSKI at Rs 3,100?
A: We think it is quite fairly priced at Rs 3,100. We do not see very significant upside at least in the medium-term. Over a longer-term obviously we will have to see what they do with the huge pool of cash flows that they generate and if you try to assign option values to those cash flows, that is when the stocks are making sense over a longer-term. But our price target has been closer to this level.
So in the short-term at least we think we are very much there.
Q: Do you see any possibility of unlocking of value from core Reliance in 2008?
A: I do not think so; we are fully valuing all the subsidiaries of Reliance adequately now. I do not know whether they will unlock value from their retail business or from their gas business. I do not think that is going to happen. I think clearly once the RPL refinery comes on stream in time, which it looks like it will, that will be a fairly good positive for the markets.
Q: What about some of the other group stocks - what do you have as a call on RPL now?
A: We are very bullish on Reliance Energy, let us put it that way. Reliance Power we still have not initiated coverage on, but we are still quite positive on Reliance Energy as a stock.
I would say that coming back to what we are discussing earlier, I think our key theme for the year is infrastructure and financial services where there is a scope for serious upside from here.
If you look at the financial services space, PSU banks look very attractive. Given our view that interest rates will fall from here we think that is an asset class, which is significantly undervalued even now. I do not think the rate cuts have been fully discounted into these prices.
So I think that there will be 30%-35% return on the sector from the PSU bank pack over the next twelve months.
Q: What is the call on IT and telecom for 2008 from your brokerage?
A: We are neutral on IT because we think that while the stocks are cheap and while earnings may come, the specter of slowing US economy will always weigh on sentiment and so even though stock do perform, the performance will not last a lot even if earnings do perform because people will all the time be worried about a slowing US economy. So that sector will face a serious headwinds in the next year; rupee is not such a big issue- I think the bigger issue is the US economy growth.
Source: Moneycontrol India :: News
