Deutsche Bank sees Sensex at 22,500 by Dec

In spite of a steep fall in market indices since the Budget, Deutsche Bank has maintained a positive view on Indian equities, saying it sees the Sensex scaling 22,500 points by December on a possible monetary easing, recovery in global growth and policy initiatives.

"We maintain a positive view on the domestic equity markets this year and believe the performance of the market will be
largely determined by policy action. We have a Sensex target of 22,500 by December," Managing Director and Head of Research, Deutsche Bank, Abhay Laijawala said.

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Since the February 28 Budget, the market has lost nearly 2 per cent, and today the 30-share Sensex dropped to a fresh three-month low of 18,877 after shedding 41 points.

The fall was triggered by the Budget proposal which said tax residency certificate was not enough to get tax exemption for FIIs coming in from Mauritius. The Finance Minister later clarified the statement was "clumsily drafted" and that there is no change in the current position.

Explaining reasons for the optimism, Laijawala said factors like economic pragmatism from the Government despite an election year, possible monetary easing by RBI, likely turnaround in corporate earnings and recovery in global growth, among others, would help the market to rally.

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He said he expects the RBI to continue rate easing cycle with a reduction in 75 basis points (0.75%) in the short term lending rate during the calendar year due to easing inflation along with slowing growth figures.

About domestic growth, Laijawala said green-shoots of recovery would be seen in the second half of 2013 with the help of capital formation from the private sector on the back of policy certainty.

The German bank described the Budget as a right mix of prudence and fiscal consolidation.

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Talking about specific sectors, he said, "while recovery in domestic economy will favour stocks in infra and rate sensitive space like banks, global recovery will support IT and metal stocks. Domestic policy decisions will support companies in oil & gas space."

On risks to positive momentum of the market, Laijawala said while domestic factors like further deterioration of current account deficit and selling by domestic institutional

investors remained the concern areas, factors like Italy election and possible fiscal cliff in the US would be critical from global perspective.