Sensex To Touch 1800 In December 2009

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23 November 2009

WhiteMonk PREDICTS SENSEX WILL TOUCH 17800 IN DECEMBER 2009 Research of the last eight years of daily SENSEX pricing data (2001-2008) for the month of December, we believe Sensex, in the month of December, would gain at least 4.6% and consequently should go to 17781.7 by our conservative estimate. Out of eight years of data, Sensex returned negative returns in just two years (2001 and 2006); in rest of the years it has given excellent returns to investors. We have calculated couple of important data points which is as given below:

2001 2002 2003 2004 2005 2006 2007 2008 Average

Average Daily Gain -0.02% 0.21% 0.59% 0.27% 0.24% -0.02% 0.25% 0.44% 0.33%

Standard Deviation Maximum 1.4% 3,442.89 0.8% 3,398.00 0.8% 5,838.96 0.8% 6,602.69 1.1% 9,397.93 1.5% 13,972.03 1.5% 20,375.87 2.5% 10,099.91

Minimum 1-Dec 31-Dec Gain(%) 3,131.78 3,275.47 3,262.33 -0.4% 3,207.36 3,228.82 3,377.28 4.6% 5,131.54 5,160.85 5,838.96 13.1% 6,227.83 6,227.83 6,602.69 6.0% 8,815.53 8,944.78 9,397.93 5.1% 12,995.02 13,844.78 13,786.91 -0.4% 19,079.64 19,363.19 20,286.99 4.8% 8,739.24 8,839.87 9,647.31 9.1% Average 7.12%

We did not include negative returns of Sensex in calculations as those negative returns are because of specific reasons in 2001 and in 2006 (Due to soft recession and again recession expectations in US). Below is the mean and standard deviation analysis of daily returns. Minimum Maximum Stdev Forecasted Sensex Minimum Maximum

4.6% 13.1% 3.4% 18210.6 17781.7 19233.7

What will drive up Sensex? We are now aware of most of the Indian economic and financial data. Except for the hurdle of inflationary pressure, Indian market is all set to sail smoothly for the month of December and in first quarter of FY2010. Let us study a bit US market as well. At present, barring unemployment data and consumer confidence, we are seeing positive data coming from US (positive GDP, Low Inflation, and increased order for durable goods). In one of our earlier research, we concluded that Indian equity market and US market specially Dow Jones is tightly coupled (with correlation factor of .33) and hence www.whitemonk.in

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23 November 2009

to understand Sensex performance we should analyze US data carefully. According to latest survey by Moody’s Economy (www.economy.com), global business confidence is improving and overall business sentiment is positive” as depicted in following graph. This sentiment is important in context with the Sensex, as most of past rally is due to foreign investor’s investments (FDI), investors, who continue to believe that Indian market will give them attractive returns in medium-long terms.

Let us look at the couple of key indicators (US DATA: source Finance yahoo), except two indicators (CPI and Housing), all are positive. We understand that ‘housing start’ is a vital and a key matrix but it will not pick strongly until unless unemployment data improves in US.

Date

Time (ET)

Statistic

For

Actual

Briefing Forecast

Market Expects

Prior

16-Nov

8:30 AM

Retail Sales

Oct

1.40%

0.70%

0.90%

-2.30%

Retail Sales 16-Nov

8:30 AM

ex auto

Oct

0.20%

0.10%

0.40%

0.40%

16-Nov

10:00 AM

Business Inventories

Sep

-0.40%

-1.00%

-0.70%

-1.60%

17-Nov

8:30 AM

Core PPI

Oct

-0.60%

0.20%

0.10%

-0.10%

17-Nov

8:30 AM

PPI

Oct

0.30%

0.70%

0.50%

-0.60%

17-Nov

9:15 AM

Capacity Utilization

Oct

70.70%

70.50%

70.80%

70.50%

17-Nov

9:15 AM

Industrial Production

Oct

0.10%

0.20%

0.40%

0.60%

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23 November 2009

18-Nov

8:30 AM

Housing Starts

Oct

529K

585K

600K

592K

18-Nov

8:30 AM

Building Permits

Oct

552K

585K

580K

575K

18-Nov

8:30 AM

CPI

Oct

0.30%

0.20%

0.20%

0.20%

18-Nov

8:30 AM

Core CPI

Oct

0.20%

0.00%

0.10%

0.20%

We wish we can have similar tracking mechanism and access to latest economic data for Indian market as well. Now the question is which sector will be performing well. Let us analyze PE ratio of Sensex as well as its key components.

Which Sector will outperform in December: At present BSE is trading at PE multiple of 17.62, most of the past performance is because of excellent performance given by BSE 100 and BSE 200. Now we believe, in coming months we will see more action in mid cap and in small cap segment. The MID CAP index PE is trading at 14.21 and small cap index PE is trading at 14.21 respectively. Pex

P/BV

Dividend Yield

year

Open

High

Low

Close

BSE 100

2009

5,021.58

9,198.20

4,122.83

8,955.67

19.24

3.26

1.35

BSE 200

2009

1,163.67

2,166.43

955.60

2,112.95

18.14

3.09

1.38

BSE MID CAP

2009

3,244.92

6,709.56

2,547.91

6,465.61

14.21

2.15

1.71

BSE SMALL CAP

2009

3,690.82

7,883.50

2,864.24

7,527.32

11.73

1.41

2.16

BSE

2009

9,720.55

17,493.17

8,047.17

17,021.85

17.62

3.33

1.47

We believe Indian market will behave optimistically for the month of December and should give a 4-5% of returns to its shareholders. The overall price performance should be coming from Mid Cap and Small Cap sector players. PS: Please check our author’s profile: http://www.whitemonk.in/info.php?about%20us&osCsid=nojtmuv3saf9c4ej8o004rddp5

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