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Although the Indian capital market seems fairly valued, many mutual fund managers believe the Sensex has potential to climb to the 22,000-24,000 band by the yearend, according to a survey by ICICI Securities Ltd.
Pharma and IT are the two most-preferred sectors for investment whereas cement, oil and gas, media, construction and aviation are at the bottom of the fund managers' picking order, the survey showed.
The survey covered 11 major mutual funds, which remain unnamed, for an overall view of the market in 2011.
None of the fund managers surveyed believed the market to be either ‘grossly undervalued' or ‘grossly overvalued'. But while a minority (9 per cent) felt it was ‘slightly undervalued', a majority (55 per cent) felt it was ‘fairly valued' and the remaining termed it ‘slightly overvalued'.
But in the near term (three months), 18 per cent of the fund managers were bullish, another 18 per cent were bearish, and 64 per cent were neutral. But none was very bullish or very bearish.
But the mood among them was optimistic over a longer horizon. While a majority (64 per cent) felt the Sensex would hit 22,000-24,000 by the yearend, 27 per cent said it would be 18,000-22,000, and 9 per cent settled for 20,000. But none of them felt it may sink below 16,000.
Risk factors
On the risk factors for the Indian equity markets, high crude prices emerged as the biggest worry (73 per cent), followed by the European Union crisis at 27 per cent and slow US recovery (9 per cent).
While the fund managers agreed that the Indian markets would continue to command ‘valuation premium' over other emerging markets, a majority (73 per cent) felt that premium may decline while 27 per cent felt it would endure.
Regarding the corporate earnings growth expected for FY 2011-12, an overwhelming 82 per cent settled for 15-20 per cent growth, 9 per cent pegged it at 10-15 per cent and an equal number at 20 per cent. However, for FY 2012-13 the numbers were a little different.
While 55 per cent believed the corporate earnings growth could be 15-20 per cent, 27 per cent put it at 10-15 per cent and the rest at less than 10 per cent.
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