Expecting inflation to come down to 5-6% by FY end: Suresh Mahadevan, UBS Securities

Suresh Mahadevan, Head Of Reasearch, UBS Securities, comments on the just out IIP numbers and their imnplications on the market, in an interaction with ET Now.

In this environment and there are many data point to contend, both domestic international, big set of earnings are being flagged up by Infosys. Fom a UBS's perspective, what are the stories that you are looking at over the next few months?

Suresh Mahadevan: I think we have been positive on the broad stock markets and economy and that goes hand-in-hand and I think the reason for our optimism is as follows: Firstly, we believe the government is able to take some tough decisions given the obviously much stronger mandate that it has got this time around and we have seen that with some of the PSU divestments. We have seen that with the oil price petrol deregulation.

Second is we are also positive about the fiscal position, thanks to the 3G WiMAX auctions and also some amount of economic recovery built my sense is fiscally we are looking at probably sub5% kind of deficit which is quite positive again from attracting foreign flows perspective.

The third thing is the power of compounding. When we look at earnings for the India Sensex companies we are looking at around 26% growth in FY11 and another 20% growth in FY12. Basically puts are Sensex EPS at around 1345 by FY12 which looks like 13-13.5 times FY12 earnings. Come November-December, this year people will start focusing on that. So that is another positive.

And finally, inflation, which everybody is worried about. I am sure with the normal monsoon, the chances of inflation coming down are much stronger. So we are looking at inflation to come down to 5%-6% by the fiscal year end. So the combination of all these positive factors make us still positive on the market. Our Sensex target is around 22000. So there is still a little bit of upside from around 18000 levels, which we touched today. So we continue to be optimistic here.