Nirmal Bang's five reasons why Sensex can touch 23000 by March 2014

Nirmal Bang highlights five reasons that may boost the Sensex to 23000 by March 2014:

Low growth in developed economies: In 2013, the brokerage firm expects low economic growth in the US and Japan and recession in the Eurozone.

Global markets are concerned with rising fiscal deficits across countries, which in turn would keep growth low. Further, if the unemployment stays high, the central banks would keep interest rates soft and continue pumping in liquidity. The excess liquidity would flow to equity markets, especially in emerging economies.

Government addressing concerns of foreign investors: The Indian government demonstrated its intent of reducing government expenditure in FY13RE and maintained its guidance on fiscal deficit at 5.2 per cent in FY13RE and 4.8 per cent in FY14BE.

The government is taking important policy measures to accelerate investment like fast-track environmental clearance for various projects, raising oil and gas prices and providing investment allowance on plant and machinery. The brokerage firm believes this is important for credit rating agencies and foreign institutional investors (FIIs) to endorse India as an investment destination.

Focus on getting higher capital inflows: On account of the high current account deficit, the government plans to encourage greater capital flows through fiscal consolidation and induce the corporate sector to invest. Hence, the brokerage expects the rupee to appreciate against the US dollar in FY14E to Rs52/$.

FIIs to help corporate sector capex plans: With foreign inflows expected to continue in the Indian stock market, stressed companies will take advantage by raising equity capital, restructuring their balance sheets and reviving the capital expenditure cycle, thereby driving economic growth.

More generally, buoyancy in the stock market generates a general climate of optimism about business prospects, and helps trigger corporate investments.

Valuations: The profits of large companies so far in FY13 have shown the corporate sector to be better off, despite the on-going economic slowdown, as they are able to take better advantage of government policies.

In the backdrop of foreign capital inflows triggering corporate investments, the brokerage firm expects the Sensex EPS to touch Rs1,429 in FY14E and Rs1,591 in FY15E. "We have assigned a P/E multiple of 14.4x FY15 Eearnings for our March-end 2014 target," it said.

By 2014 March-end, Nirmal Bang expects the Nifty to touch 7000 and the Sensex to touch 23000 at 14.4xFY15E P/E.