India Stocks May Rally 15% Over Next Nine Months, JPMorgan Says

June 23 (Bloomberg) -- India’s stock market, the world’s fifth-best performer this year, may rally another 15 percent over the next nine months as valuations on the benchmark index offer “reasonable upside,” JPMorgan Chase & Co. said.

The Bombay Stock Exchange Sensitive Index may trade between 12,500 and 16,500 in the year ending March 2010, JPMorgan analysts led by Bharat Iyer said, based on current-year earnings estimates. There may still be a “near term consolidation” after this year’s gains, they added.

The Sensex has rallied 49 percent this year, lagging behind indexes in Peru, Sri Lanka, China and Russia among the 89 measures tracked by Bloomberg globally. Almost a third of the gains came after Prime Minister Manmohan Singh’s Congress party won its biggest election victory since 1991.

“We remain constructive on a 12 to 18 month view, given the policy freedom available to the new government,” the analysts wrote in a note dated yesterday.

Finance Minister Pranab Mukherjee will unveil the government’s budget deficit numbers for the current fiscal year next month, when he presents his budget. The government in February said the deficit may be 5.5 percent of gross domestic product.

India has announced three stimulus packages since December, lowering retail fuel prices, cutting taxes on consumer products and injecting capital into state-run banks, to shield the economy from the global crisis.

Weak Monsoon

New stock sales and a weak monsoon may be “near-term pressure points” for Indian stocks, the analysts wrote. India’s monsoon, which runs from June to September, resumed this week after a two-week lull.

JPMorgan cut its rating on consumer discretionary stocks to “neutral” from “overweight,” advising investors to instead hold more technology services companies.

The brokerage added Satyam Computer Services Ltd., the software company at the center of India’s biggest corporate fraud, to its list of recommended shares.