Ambit Capital Research one of the best entities that has been in sync with how the markets move has cut year End BSE Sensex target to 28,000 from 32,000. Ambit cites reasons that a decisive mandate for the BJP in the 2014 General Elections, the Indian economy was entering its fourth wave of economic expansion but that has not materialized.
Even as their Sensex target moved from 36,000 initially (in November 2014) to 32,000 (FY16 Sensex EPS estimate of Rs1600 at 20 X forward P/E), the cuts resulted primarily from a cut in our bottom-up earnings estimates. Through these cuts, we kept the trailing Sensex P/E target unchanged at 20x on the premise that the structural positives emanating from the current dispensation’s three key resets should improve the long-term economy fortunes of India.
Ambit believes that the failure on the part of the Government to get GST Bill & Land Bill passed will delay the economic revival that formed the basis of their rationale to assign a 20x multiple to FY16 Sensex estimate [ Rs 1550]. In the light of these risks, they scale down the Sensex P/E multiple to 18x, in line with the historical (last ten-year) average.
What are the Chances SENSEX will Fall to 22,000 ?
In the past we have seen during Global Financial Crisis of 2008 led by the fall of Lehman Brothers, Trailing SENSEX EPS P/E fell to as low as 14. If that were to happen then at Rs 1550 8 14X can bring the SENSEX down to a low of 22,000.