There is already too much negativity in the markets so next year cannot get worse than this..

Despite the constant volatility in the market, there is still chance that investors can get some good returns. Vivek Mahajan, Head of Research, Aditya Birla Money, talks about the how the year 2012 panned out for the Indian equity markets and his outlook for the next year. He also talks about strategies that investors can adopt to ride the markets.

Did the year pan-out the way you had expected for the markets?

Surprisingly, the year has been fantastic. If you look at specific stocks, very good money has been made. FIIs have poured in $20 billion in the market till date but unfortunately we as Indians have lost out. Retail investors have not come into the market. They have not participated and have been sceptical all along. There has been so much of negativity, so much of noise in the market and people are just looking at negativity, noise and missed out on such a fantastic story.

If you see stocks in particular sectors, FMCG stocks are at a life-time high, in the banking space – private sector banks are virtually are at life-time highs. The pharmaceutical and IT space has done well. Where you have invested is important. The market may not have gone up significantly, but some stocks have given phenomenal returns.

What is your outlook for the next year?

The downgrades are there but they seem to be tapering off at this point. Interest rates have peaked out which has been a very positive thing.

If the interest rate go further down — the interest sensitive stocks will come back to the market. Market will go up from the current levels. One year down the line, the markets would have gone up 12-15 per cent. Maybe retail investors will start participating in the market; a lot of issues are going to hit the market. It is possible that they might bring back retail interest in the market. I am positive on the market from the medium to long-term perspective.

Markets are awaiting reforms such as FDI in multi-brand retail, FDI in insurance. The policy front is important. There is already too much negativity in the markets so next year cannot get worse than this.

Two very big reforms such as GST, DTC should be implemented. Even direct transfer of subsidies is important. When it becomes a reality, these will be the major game changers as far as India is concerned. Each of them has the potential to add a percentage to the country’s GDP.

What strategy should investors adopt at this point?

They should pick companies, which have low debt on their balance sheet or no debt on their balance sheet. They should go for companies which are not into any unrelated business. They should be very careful when you look at a mid-cap company because there could be issues in a mid-cap company. While you still stick with defensive, maybe depending on the risk appetite about 30-35 per cent could still be allocated to interest-sensitive stocks. I feel stocks in the banking (private banks) and auto sector will do well next year.

Will global money continue to chase Indian equities?

There are too many issues globally. There is the US fiscal cliff, which is the immediate thing at this point of time, secondly the European problem. Although the European problem was sorted out in the short- term, I believe it is unlikely to go away that easily.

Global investors will continue to look at markets which will give significant returns. So the money will continue to chase highly return yielding assets and those are in emerging markets and I believe India will continue to attract more than its share to global markets.

Has the health of brokerages started improving?

Health of brokerages is definitely improving. The volume in the market has gone up, the commission base has stabilised at current levels. New clients are not coming, so existing customers are putting in money. I believe there is a long way to go. Going forward MCX-SX will become operational. I’m very sure that the coming of MCX-SX will broaden the market new set of investors will enter the market as they try to increase participation from tier two–tier three cities of India. The equity market is going to see positive days ahead.

(This article was published on December 9, 2012)
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