Citi sticks with year-end Sensex target at 28,800

Mumbai: Global financial services major Citigroup has maintained year-end Sensex target at 28,800 amid expected rise in interest rates by the US Fed post its chair Janet Yellen saying the case for rate hike was strengthening.

While estimating the US Fed rates hike only by December, this year, Citigroup in a note analysing the impact of such an increase on Indian equities said in the past, period post the hikes showed that the markets had given positive returns in most cases.

According to the US-based firm, its Sensex target of 28,800 "remains unchanged" and it expects "domestic fundamentals (corporate earnings) to drive markets in the medium term and would use any consolidation post-Fed as an opportunity to buy".

"Citi US economists believe that December remains more likely for a rate hike and also think the path of future rate hikes will be shallower," Citigroup said.

Looking at the historical performance of Indian stocks during US Fed rate hike, Citigroup noted that market returns in the period post the hikes showed that "equities have tended to do well ? market returns were positive in most cases when the US hiking cycle began".

"Market returns in the immediate run-up to the start of the hiking cycle have been mixed," it added.

Citigroup also observed that performance of the rupee in previous episodes of US Fed rate hikes has been more mixed.

"While the rupee strengthened during the 2004 hiking cycle (CAD surplus), it weakened in the 1997 (CAD: 1.2-1.3 percent of GDP) and 1999 (CAD: 1 percent of GDP) cycles and was flattish in the 12M following the 1994 (CAD: <1 per cent of GDP) hiking cycle.

"We expect CAD at 1 percent of GDP in 2016-17," Citgroup said.

In her recent address to an annual gathering of central bankers in Wyoming, Yellen took note of strong job growth in the US, saying gradual increases in the Fed's benchmark rate in the coming years should be expected.