The Hindu Business Line : Market outlook for 2009: ‘Bad news priced in, better times ahead’

That is the forecast made by leading domestic institutions for 2009, as we step into the New Year. Many of them even expect FII flows into Indian stock markets to revive next year, even as GDP growth moderates to 6-7 per cent. These investors are taking the view that the bad news is already priced into current stock valuations and that resilient demand will make India a favoured destination for global investors.

Risks priced in

Projecting a Sensex level of 12000 to 14000 by December 2009, leading brokerage firm ICICI Securities argues that the Indian markets warrant a “re-rating” despite the likely earnings slowdown, given that India will benefit from a falling oil import bill.

“As the process of global deleveraging nears its end and the fortunes of the dollar reverse, fund flows may resume into regions such as India that offer better growth prospects,” predicts Mr Pankaj Pandey, Head of Research at the firm.

“Though corporate earnings would be under stress in the first half of 2009, the markets will bottom out before that,” forecasts Mr A. Balasubramanian, Chief Investment Officer of Birla Sun Life Mutual Fund. He believes that consumer confidence will remain relatively intact in India, thanks to a high savings rate and relatively low debt. He also expects recent interest rate cuts to help earnings out of a cyclical slowdown.

“By the middle of 2009, as policy reflation yields results, we will see larger capital getting allocated to riskier asset classes. We believe India stands a great chance of attracting risk capital,” he says.

Mr S.A Naryanan, Managing Director of Kotak Securities, takes a more circumspect view for 2009; he predicts that the BSE Sensex would move in the 9000-12000 range. He sees a fractured mandate in the forthcoming elections and persisting global economic turmoil, to be key risks to the market this year.

Help from stimulus

Insurance companies are expected to be big investors in Indian stocks over 2009, as inflows into their market-linked plans pick up in the first quarter. Says Mr Prashant Sharma, Head of Investments at Max New York Life, “Though there is a widespread view that corporate performance would be rather sluggish over the next year, the market outlook over the medium and long term period looks good.”

Making the point that valuations for Indian stocks have already priced in lower growth expectations, he thinks that the economy should react favourably to the recent fiscal and monetary actions of policymakers.

“Markets generally turn in advance of economic fundamentals,” points out Mr Sandeep Kothari, Equity Fund Manager at Fidelity International, who however, does see the possibility of the markets falling further before they trend higher.

“Valuations are at the lower end of the trading range and negative expectations appear to be priced in, but we may yet see an undershoot on profits and valuations in the short term,” he says. But whatever their market view, all of the above experts believe that 2009 will present great opportunities for Indian investors to add to their stock market exposures.