Deutsche Bank raises Sensex target to 22K as investors' pessimism receding

MUMBAI: Deutsche Bank has raised its December 2013 Sensex target to 22,000 from 21,000, an increase of nearly 6% from the current level, saying investor pessimism was receding amid some big positives: currency stabilisation, rural demand recovery, global growth and good monsoon.

"While we are not expecting any imminent turn in private sector investment momentum and remain cautious over near-term monetary policy action, we believe expectations of a toughening macro economy, likely withdrawal of extraordinary liquidity tightening measures by the Reserve bank of India following currency stabilisation, a synchronized global growth recovery and a Fed that is expected to stay 'looser for longer' should offset near-term concerns," said Deutsche Bank in a report.

The BSE Sensex has risen nearly 4% in the past month, hitting 21,000 levels on Thursday - a yardstick touched after three years - aided by strong FII liquidity inflows that have touched close to 13,000 crore in October so far.

At 22,000, Sensex would trade at a P/E multiple of 15 times its 2014 earnings, which the German bank says, is in line with its past five-year trading average.

Deutsche Bank also named banks as its top 'Overweight' in its model portfolio, citing receding concerns over tight liquidity and higher short-end interest rates, followed by metal stocks. Meanwhile, the global investment bank has cut IT services to 'Neutral'.

It has raised metals to a key 'Overweight' on the back of synchronized global recovery and expectations of furtherstrength in China growth momentum. Among the other positive factors, Deutsche mentioned a bottoming out of the economy, the likely withdrawal of liquidity-tightening measures by the Reserve Bank of India, a synchronized global growth recovery and a Federal Reserve that has delayed tapering of its monetary stimulus.

Deutsche Bank has added Axis Bank, Bharti, Bharat Forge, Coal India, Godrej Consumer, ITC, IndusInd Bank, Larsen & Toubro, Maruti, Reliance, Tata Steel and Zee as its top picks.

Contrary to the prevailing pessimism during the currency crisis, the September quarter results season so far has been above Street expectations, assuaging investor concerns of an accelerated earnings downgrade cycle, said the foreign brokerage.