Sensex breadth an issue, DSPML’s forecast
First, a look at the market breadth, specifically that of the BSE Sensex-30 index:
The benchmark index gained 16% in fiscal 2006-07. Closer inspection, however, reveals that most of the gains accrued from just four stocks. The Fab Four that helped generate positive returns are Bharti Airtel, ICICI Bank, Reliance Industries and Infosys Technologies.
These four stocks together have a combined weight of 38% in the Sensex . . . but for the contribution of these four stocks, the benchmark index would have generated no returns.”
As for where the Sensex is headed, here’s a forecast from DSP Merrill Lynch:
We would be happy if we see a 15-16% growth, but should be prepared for downgrades to earnings, that will take us somewhere between 12-13% . . .
If that is the case, automatically if you apply reasonable PE multiple, it is quite possible that this market will trade in a 11,500-13,000 range or so for the next six months.
Ah, but there’s the P/E multiple assumption - check out Deepak’s post on the issues with the Sensex P/E.
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