India's Sensex May Fall to 13,000, Credit Suisse Says
Sept. 3 (Bloomberg) -- India's benchmark Bombay Stock Exchange Sensitive Index may fall to 13,000 by January amid concern that inflation will accelerate, according to Credit Suisse Group AG.
Wholesale-price inflation may accelerate to more than 5 percent by March while consumer prices are expected to post further gains, analysts Nilesh Jasani and Arya Sen said in a report today. Investors should reduce their holdings of banks, real-estate developers and makers of automobiles and capital goods in their so-called short-term portfolios, they added.
Credit Suisse's forecast represents a 16 percent decline in the Sensex. The gauge fell 0.5 percent to 15,467.46 yesterday, trimming its gains this year to 60 percent.
"We expect equity markets to come under repeated pressure from the inflation-related developments," the analysts said. "The correction should prove temporary, lasting a few months."
The Reserve Bank of India has kept the reserve ratio at a three-year low of 5 percent since January and the key repurchase rate at a record low of 4.75 percent since April. The central bank, which cut the reserve ratio four times and borrowing costs six times since early October 2008, signaled on Aug. 27 it may need to start tightening policy to ward off inflation.
Benchmark 10-year bond yields increased by a record 2.17 percentage points this year, even as wholesale-prices inflation turned to a negative 1.7 percent at the start of August, from about 6 percent at the end of 2008.
"Even without any change in policy rates or reserve rates, the Reserve Bank of India's lesser liquidity support to the bond market will repeatedly create pressure on bond yields as headline inflation continues to soar," the analysts wrote. "If historic volatility in long bond yields is any guide, a 150 basis-point further increase in yield is a possibility leading to repeated pressure on equity markets."
To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net
Sept. 3 (Bloomberg) -- India's benchmark Bombay Stock Exchange Sensitive Index may fall to 13,000 by January amid concern that inflation will accelerate, according to Credit Suisse Group AG.
Wholesale-price inflation may accelerate to more than 5 percent by March while consumer prices are expected to post further gains, analysts Nilesh Jasani and Arya Sen said in a report today. Investors should reduce their holdings of banks, real-estate developers and makers of automobiles and capital goods in their so-called short-term portfolios, they added.
Credit Suisse's forecast represents a 16 percent decline in the Sensex. The gauge fell 0.5 percent to 15,467.46 yesterday, trimming its gains this year to 60 percent.
"We expect equity markets to come under repeated pressure from the inflation-related developments," the analysts said. "The correction should prove temporary, lasting a few months."
The Reserve Bank of India has kept the reserve ratio at a three-year low of 5 percent since January and the key repurchase rate at a record low of 4.75 percent since April. The central bank, which cut the reserve ratio four times and borrowing costs six times since early October 2008, signaled on Aug. 27 it may need to start tightening policy to ward off inflation.
Benchmark 10-year bond yields increased by a record 2.17 percentage points this year, even as wholesale-prices inflation turned to a negative 1.7 percent at the start of August, from about 6 percent at the end of 2008.
"Even without any change in policy rates or reserve rates, the Reserve Bank of India's lesser liquidity support to the bond market will repeatedly create pressure on bond yields as headline inflation continues to soar," the analysts wrote. "If historic volatility in long bond yields is any guide, a 150 basis-point further increase in yield is a possibility leading to repeated pressure on equity markets."
To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net
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