Retail investors feel Sensex will rise 14%: Study

“The Sensex may close the year 2011 with a 14 per cent gain. Politics, and not inflation, is the biggest worry for stock markets. Technology is the top sector choice, while telecom is the most out-of-favour.”

The above views are not those of any foreign institutional investor operating in India, but of affluent retail investors in Indian cities. A recent survey conducted by Morgan Stanley under its Alphawise series asked 600 urban Indians with average income levels of $13,500 a year about their views on investments in today's circumstances. The findings show that these investors were, by and large, bullish about stocks and displayed a lot of conviction too in their optimistic forecasts for equity investments.

As a class, the retail investors were bullish about the markets. While the average prediction was for the Sensex to rise by 14 per cent by 2011-end, over two-thirds of the investors said the Sensex may rise even further, to cross 22,000 during the course of this year.

Only 15 per cent of the investors said the Sensex wouldn't rise from current levels.

While generally optimistic, investors said that the two factors that could derail markets are politics and global market conditions. Though retail investors haven't been all that participative over the last two years, they didn't seem to be wishy-washy about their views on markets.

Morgan Stanley notes that “41 per cent of the respondents were confident or highly confident of their views.”

Asked for their choice of most attractive and least attractive sectors, investors made fairly predictable choices.

Technology — this year's top performer was voted the most attractive, while underperformer — telecom was dubbed the least attractive. Materials and consumer discretionary stocks, again outperformers, were also among top choices for investors today, while industrials and energy were among the least favoured.

No contrarians there.

Will they buy?

Given that investors seem to be so sanguine about equities, will they match their views with action? Responses from the survey suggest that they may, but very selectively. A full 30 per cent of the respondents said that they would follow stock selection as a strategy in 2011.

Another 24 per cent said that they felt valuations were expensive and would only buy on a correction.

Only 18 per cent were unequivocal in saying: “We are in a bull market and I will keep buying equities”.

The survey notes that the general optimism about stocks seemed consistent with actual investor behaviour in recent months with domestic mutual funds witnessing four successive months of inflows.

The investors surveyed by Morgan Stanley seemed to be active equity investors, investing about 31 per cent of their portfolio in stocks, 19 per cent was put away in insurance and fixed deposits made up 15.2 per cent of the portfolio.

Gold, as an investment may have delivered good returns, but it made up only 6.9 per cent of the portfolio for these investors.

On an average, investors checked on their portfolio once a week and held stocks for 12 months.

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