Economy and earnings to drive shares higher - POLL

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By Ami Shah

MUMBAI (Reuters) - Robust growth in the economy and corporate earnings should drive the BSE Sensex (^BSESN : 17730.24 -25.7) higher over the next year but gains may be capped as euro zone worries continue to bother investors, a Reuters poll showed.

Median responses from 20 brokerages showed the 30-share BSE Sensex gaining 7 percent to 19,000 points by the end of 2010 from Thursday's close of 17,730.24, and 17 forecasts showed it rising over 18 percent by the end of June 2011 to 21,000.

"The Indian market dances to the tune of foreign money, and inflows from FIIs (foreign institutional investors) are not yet consistent," said Ambareesh Baliga, vice-president of Karvy Stock Broking.

"GDP growth and earnings growth will help the Indian market rise over the next year. But a rise in markets for the rest of the year may be subdued as euro zone issues still linger," he said.

The corresponding poll from March also had a forecast of 19,250 points for end-2010, but 18,000 for mid-2010 now looks a little optimistic with a week to go.

Global financial markets have seen wild fluctuations in the last quarter emanating from a crisis of confidence over the indebtedness of euro zone states.

Foreign funds have invested a net $1 billion in Indian equities so far this month, after withdrawing $2 billion last month as euro zone jitters hit risk appetite.

Primary market offerings are likely to absorb a part of the liquidity flow, dealers said. Indian companies have raised a total of $10.7 billion through share sales so far in 2010, compared with $2.6 billion in the same period last year and about $16 billion in 2009, according to Thomson Reuters data.

Bankers have said India could see roughly $30 billion of equity issuance in 2010.

EXPANDING ECONOMY

Asia's third-largest economy is expected to grow at least 8 percent in the current fiscal year that started on April 1, after growing 7.4 percent last year, and the finance minister has said a normal monsoon would make growth of 8.5 percent.

India, the world's second-fastest growing major economy after China, grew at its fastest pace in six months in the quarter through March thanks to government and consumer spending.

K.K. Mital, head of portfolio management services at Globe Capital, expects Sensex-30 companies and Nifty (^NSEI : 5320.6 -2.55)-50 companies to see earnings growth of 25-30 percent in fiscal year 2011.

Capital goods, agriculture-focused companies and IT firms should be the leaders of growth over next year, market participants said. Better monsoon expectations bode well for agriculture-related firms, while rising order visibility could push outsourcers higher.

India's monsoon rains, vital for the farm-dependent economy, have covered half of the country and are running three days behind normal, but the delay is not yet a cause for concern, weather officials said late last week.

"Infrastructure companies should do well as there is so much more to do on that front in India. The demand is huge and money should flow in there," said Arun Kejriwal, director of research firm KRIS.

The BSE index, which registered a spectacular 81 percent gain last year, has risen 1.5 percent this year, outperforming emerging market rival indexes in China and Brazil.

(Polling by Bangalore Polling Unit; Editing by Tony Munroe and Jon Loades-Carter)