Sensex to hit 40,000 in two years: CLSA

Foreign brokerage CLSA has said the Sensex is poised to gain 75 per cent through 12-24 months, on a technical basis. A 75 per cent jump in the benchmark index could take it to 40,000-levels.

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The report added, "A technical view of the recent breakout of Indian markets to new highs is that of a signal that the long-term uptrend off the 2003 low is resuming.

This implies an upside target for the BSE Sensex of 39,707 (+75 per cent) through the next 12 to 24 months," CLSA said in its India strategy report authored by analysts Mahesh Nandurkar, Laurence Balanco and Abhinav Sinha.

At current levels (21,483-22,023), however, the Sensex could see a temporary dip of three-five per cent, an attractive buying opportunity.”

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On a fundamental basis, too, the brokerage expects Indian markets to do well. It expects the Sensex to give compounded annual returns of about 15 per cent through the next two years. 

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The report said, "We are looking at more gradual market gains like 15 per cent over a two-year period; largely in line with the earnings growth; a possibility of 5-10 per cent re-rating exists as earnings upgrades unfold from the second half of FY15."

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The brokerage's fundamental and technical points of view converge on the sectors expected to lead the Sensex's uptrend.

The report said the common 'buy' ideas pointed to a recovery led by domestic cyclicals.

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The broking firm is bullish on stocks such as L&T, State Bank of India (SBI), Maruti, GAIL, HDFC Bank and Reliance Industries and has recommended buying these stocks.

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The report said, "Larsen, Maruti and SBI are already up 20-47 per cent up on expectations of a cyclical recovery. Within these three, Larsen and Maruti's valuations are close to 10-year historical averages, while SBI is at a 30 per cent discount."

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Being low-beta plays, GAIL, HDFC Bank and Reliance Industries would see limited downside in case of adverse election outcomes, the report said.

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The brokerage had a negative view on defensive sector stocks such as technology and health care.

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 The report said, "The technical view is negative on exporters Dr Reddy's, TCS and Wipro. We note if a domestic cyclical recovery were to play out as expected through the next couple of years, cyclicals will outperform exporters." 

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Last year, stocks in the technology and health care sectors were the favourites of investors due to 12 per cent depreciation in the rupee.