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“It's going to be a rocky road to recovery,” “The route is going to be torturous” and “It's only gloom for the first half of 2012” are some of the predictions that one comes across in reports from broking houses.
With the turbulence seen in the global markets, the Indian equity markets have also seen see-saw movements this calendar. The 30-scrip BSE Sensex has fallen almost 26 per cent since the beginning of the year. After seeing highs of 21,000 in the first half of this year, the market has fallen to 15,500 levels.
The only consistent theme in the market has been that of volatility. Analysts are now estimating the Sensex to inch further downward to between the 12,000 and 14,500 levels in the first half of 2011. However, the second-half of next year will see the Sensex recovering, they say.
Tortuous route
Brokerages variously predict the Sensex will be anywhere between 18,500 and 19,000 by the end of 2012. “Markets would find its sweet spot at around the P/E level of 14.5-15 and P/B level of 2.6-2.8 for our FY13e earnings and hence our Sensex target for End CY12e is 18,600-19,200. However, the route to those levels would be quite tortuous,” said a report from Antique Stock Broking.
Citi India Equity also estimates the Sensex to recover by end of 2012. They “expect positive market movements to be more upfront than back-ended (cyclical gains with structural caps from slower growth and forex vulnerability).”
The year 2012 will see a carry forward of internal as well as external concerns, say analysts.
Challenges
“The external headwind remains leverage to credit from Europe and its impact on a weak balance of payments. On the domestic front, the challenge is the high fiscal deficit and the slowdown in policy approvals,” said the Asia Economics Flash report by Goldman Sachs.
The first three quarters of 2011 saw a GDP growth of about 7.5 per cent as compared with the corresponding period in the previous year which saw a growth of 8.9 per cent. Due to the decelerating growth in the economy, analysts and institutions have revised their forecasts for the next fiscal.
“Indications are that our GDP growth will be lower than estimates at the beginning of the year, and mid-year review conveys the same. However, the broad consensus is veering towards 7.1-7.2 per cent level and that seems to be achievable,” a report from Antique Stock Broking said.
FII flows
Analysts don't expect the FII flows to turn positive in the near future. “In 2010, we had seen record FII flows of around $ 29 billion. FII flows during 2011 have been flat. We would expect FII flows to be low in early 2012 at least,” said a report from Bank of America-Merrill Lynch.
Although there will be a recovery in stocks almost everyone is agreed that the lead up to it will be challenging. “2012 will be a difficult year for equity investors — another year of living dangerously,” said Mr Dominic Rossi, Global Chief Investment Officer- Equities at Fidelity.
With the uncertainty in the Indian stock markets, trading activity has been low and investors across the country have transitioned from active to dormant ones. The focus should now shift from short-term investing to medium- and long-term investing, say analysts. Credit Suisse maintains the outlook of ‘playing safe' while Asia Economics Flash (Goldman Sachs) maintains that the outlook for next year is stormy and it's better to put one's ‘raincoat' on.
Although it may not be the right time to trade, market gurus maintain that it is the right time to invest in stocks with good valuations. “The first half of 2012 is expected to present an opportunity to build positions in top quality companies that have a long-term competitive edge, whilst prudently managing portfolio risk,” a report from Fidelity said.
Exposure to asset classes with long term fundamentals is what analysts are recommending. “Investors should focus on picking attractive stocks. Many stocks have touched new lows in this year and this trend will continue for sometime now. In my opinion, investors should see the positive side of investing rather than complain about market conditions,” said a broker.
“The second half of 2012 will definitely be a better year for equities. This has been a tough year for the markets and at this point the markets could go either way. We are of the opinion that FMCG and pharmaceutical sectors will do well,” said Mr Abhinav Angirish, Founder and CEO, Invest Online.
Consensus view
Sectorally, the consensus view is that the information technology and the pharmaceutical sectors may do well in the coming year. “We expect the Indian IT services sector to particularly get a second wind with a structural downward revision in rupee estimates. TCS and Sun Pharma are therefore our top two buy ideas,” said an equity outlook report from Credit Suisse.
BoA-Merrill Lynch has chosen to “play a mix of defensives.”
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