Cni Economist sets Sensex target 30 K in 2008

Endorsing our economists view that interest rate cut is really harmful for US currency, a Chinese finance official wrote in a commentary Thursday in an official newspaper that Further cuts in U.S. interest rates would have a "harmful effect" on the dollar and the international finance system.

The dollar's fall against many currencies has prompted investors to sell dollar-denominated assets, Hu Xiaolian, director of the State Administration of Foreign Exchange, wrote in the Financial News, a newspaper published by the central bank.

"If the (U.S.) federal funds rate continues to fall, this will certainly have a harmful effect on the U.S. dollar exchange rate and the international currency system," Hu wrote.

Financial markets closely watch official Chinese comments on the dollar because Beijing keeps a large portion of its $1.4 trillion in reserves in U.S. Treasury securities and any change in China's investment strategy could affect exchange rates.

Despite his warning, Hu wrote, "the U.S. dollar's dominant position in international currency markets is unlikely to change in the near term."

The U.S. Federal Reserve has lowered its federal funds rate, the interest that banks charge each other for overnight loans, to 4.25 percent, a full percentage point lower than it was in September, to ease a credit crunch in the U.S. financial system.

Chinese officials have said that cutting the rate could encourage investors to move money to Asia or elsewhere in search of better returns, which could depress the dollar.

We therefore continue to believe that Rupee is heading to 35 in next 12 months hence avoid going long in tech stocks. This view has now been echoed by a foreign broking house siting rupee peg rate at 33 in 12to 18 months. It is well known in the industry circles that Infosys, TSC and Wipro have fully geared up to tackle with rupee 33 levels which tosses the probability of in favour of at least 35.

This is more significant to assess the destination of Indian capital market. If rupee is slated to rise to 35 levels and foreign funds started to believe this then the flow of funds in the coming months will exceed 2007’s flow by at least 3 times.

The precise reasons for expecting huge inflow are ……

Thailand not doing well and the unrest in Pakistan gives rise to the oil tensions and as result there will be flight of capital from GULF regions which is cash flush.

US economy though for sure has bottomed out and heading for 16000 DOW in just next 3 to 6 months, will not give as much returns as India is giving and hence FII would pull in more money in India.

The FUND psychology is that invest in stock which has outperformed rather than performing one similarly invest in a country which has outperformed rather in performing one. India fits in that category. Though Sensex has performed smartly the individual stocks have really out numbered the performance of Sensex.

There will be first time departure of huge allocation to India which will be 50% higher than earlier years from the funds which were hugely affected by sub prime in US. The ROI in India is so great that the hopes of mitigating entire losses only from India is not ruled out.

Apart from the same, on domestic front 2 losses in Gujarat and Himachal Pradesh and a probable loss in Rajasthan makes Indian politics a good case of stability. Ruling party as well as LEFT would stay cool for the remainder period which offers a good platform for 2008.

The reflection of good monsoon will start visible from JAN and very soon the GDP projections of 10% will feel visible like the way the revenue targets set by the Indian Finance Minister. Farm growth is likely to exceed 5% by March 08 and Budget will find more provisions to target the same at 6% next year. The day is not far when we can see 7 to 8% farm growth. This will lead to more GDP re rating.

The huge inflow have opened the flood gates of infrastructure in India which will lead a massive rise in per capital income at macro level which in turn give boost to savings as well as domestic consumption cycle.

We have reasons to believe that funds expected to creep in this fiscal could be as high as 35 bn USD which is sufficient to take the Sensex to 30 K even on expanded base of 20 K.

The statistics suggest that only 1% of Indian population invest in equity so far which we think will rise to at least 3% by 2010 which means the savings will travel into capital market from every nook and corner. We had predicted 2 years back that daily turnover will ride over Rs 1 lac crs which has now become realty and we pledge on the volumes rising to 2 lac crs in another 2 years which is just not possible if the 3% criteria is not met. In fact, this is the reason the broking is getting huge valuations which is really unprecedented but fact remains. Investors should really look at investment opportunities portals such as travel, finance, marketing, retail, c to c and b to b which will give stunning returns in next 3 years.

The level of domestic consumption is becoming aristocrat tipping point which is making all MNC especially US and Japanese to go ahead and sign with Indian partner however small he is because they have learn only one thing that there is no way to capture Indian market on its own in the shortest possible time and hence enter through vehicles.

This is boosting the confidence level of Indian industrialists which is visible from huge capex lined up in various sectors. The impact of the capex is yet to be felt.

The bottom line is if 20 K was the answer of 2007 30 K could be of 2008 and the sectors will be capital goods, power, power equipments, civil aviation, auto, auto ancillary, metal, mining, media, print media, research firms, insurance , internet content firms , realty, glass, education, gas distribution, road and port logistics, seeds, fertiliser, sugar etc

Sectors to avoid are cement, tech, textile, only export dependent cos.