The key feature of the fast and furious market rally over the past week – after the Election Commission announced the 2014 election schedule on 5 March – has been the significant outperformance by high-beta, rate- and domestic cyclical sectors such as banks, real estate and capital goods that had hitherto been laggards over a longer period since the beginning of CY13. In contrast, defensives such as IT services, pharma and consumer have significantly underperformed the market over the past week. We note that IT services and pharma remain the two top-performing sectors since the beginning of CY13.
First, our overall market stance remains positive. Despite the sharp ~5% rise in market indices since 3 March, Nomura Research still see a potential 13% upside from current levels to our Dec-end Sensex target of 24,700. This base-case index target assumes that the market will re-rate from the current 12-m forward earnings multiple of 13.3x to 14.9x by Dec-end.
Second, Nomura remains positive on banks, which they think is one sector that is poised to benefit the most should the market. Valuation-wise, the Bankex index is currently trading at a 47% discount to the Sensex on a price-to-book basis. This compares favourably with a 10- year record low discount of 56% seen in the wake of the global financial crisis in Mar-09.
