11th December, 2009

There are different vies on where the BSE Sensex would be at the end of year 2009. Although no one can predict with any accuracy the movement of the Indian Stock market in the coming days but certain guess work and analysis helps the stock investors to get a perspective on the Stock market.

According to one view point of Morgan Stanley the bear market is likely to continue through 2009, depending on how political and economic factors pan out in the new year. The BSE Sensex could move in a wide range in the coming 12 months. The fair value estimate for the Sensex is seen at 9,182 points for December 2009.

In adverse and negative news flow the index could drop another 31 per cent to 6,355, whereas the positive sentiment and financial developments can take it higher by 54 per cent to 14,225.

"To turn the tide, India needs pump-priming without the use of public debt ... better relative valuations, global calm, a good election result to ensure smooth policy action in the coming years," Morgan Stanley said in a research note.

The probability of the Bull Run is slim at 10 per cent and the stock market is biased towards flat to downside rather than an upside. In all probability, the weighted BSE Sensex outcome for December 2009 is 8,559.

No one expects a V shaped recovery in the stock market. Even if we assume that we have hit the bottom history shows that stock markets always tests the previous low before a new bull market gets under way.

Investors, who are genuinely looking at long-term investments, this may be a golden opportunity as Indian growth story is likely to continue for the next few decades with minor blips here and there. India has a robust capital market and infrastructure backed by a strong structural liquidity story emanating from demographic riches and rising private savings.

A Reuter’s poll concludes that the 30-share BSE Sensex is seen at 10,750 points by mid-2009 and 11,000 by the end of next year, according to the median forecast given by 13 analysts.

The consensus expectation is for a rise of 17 percent by the end of June and 20 percent by the end of 2009 from Monday's close of 9,162.62 points.

But the index has fallen 55 percent so far in 2008 and in a similar poll in September, when the index was near 14,000, analysts expected the index to rise to 18,000 in 2009.

Analysts at Kotak Institutional Research indicate the fair value of the BSE Sensex at 12,000 by the end of 2009. They have revised the forecast for the Sensex's earnings growth at 10.9 per cent for 2008-09 from the earlier 13.4 per cent. The earnings growth estimate for 2009-10 has been revised to 11.3 per cent from 12.7 per cent after the recent changes to the earnings estimates of Reliance Industries, ICICI Bank, Tata Steel and auto companies.

Analysts do not rule out a further downside risk to earnings in the current uncertain environment. However, they see large potential upside risks to the earnings in the banking sector, especial