Market View

With the rally, valuations have picked up from their trough in the last quarter of 2011. The macro trade and continued foreign flows could continue to make markets climb higher, but valuations aren't as attractive as they were before the rally. Also, we need to monitor if the earnings estimates begin to rise again, as they often do, with a lag. At this point, we believe earnings growth for FY13 is likely to be in the region of 12-15 per cent. In the absence of acceleration in earnings forecasts, the market will find the going tougher, though we aren't really in expensive territory. We remain more watchful, as the easy pickings are now largely gone. Furthermore, we await signs of the government moving in the right direction in terms of policy in its Budget in March.

— RELIGARE MUTUAL

The Indian economy could spot relief in terms of interest rate reductions and lower inflation, but higher fiscal deficit, currency volatility and crude oil continue to remain concerns. RBI, as part of its monetary policy easing, is expected to start reducing policy rates between March and July 2012. A gradual improvement in confidence due to progress in handling the euro crisis, and easing of the monetary policy in emerging markets will be the main triggers of recovery in global markets. However, risks in the form of renewed recession in advanced economies accelerating into a widespread financial crisis continue to hover.

Markets will continue to remain volatile, as uncertainty prevails because of the outcome of the UP elections, and the government's policy actions in the union budget. The market will be keenly watching the government's commitment for exercising fiscal prudence and reducing the deficit. Consequently, we continue to recommend lump sum investments in funds that benefit out of volatility, like ICICI Prudential Dynamic Plan and ICICI Prudential Equity & Derivatives Fund – Volatility Advantage Plan.

— ICICI PRUDENTIAL MUTUAL

We expect short-term rates to fall by 50 to 100 basis points in 2012, in response to the RBI's rate reductions and improvement in systemic liquidity. Simultaneously, higher government borrowing in the next year may keep long-term rates elevated due to supply pressure. This should result in steepening of the yield curve. We also expect more credit downgrades in 2012 due to cyclical reasons. This may result in the widening of credit spreads between AAA and non-AAA rated assets.

— DSP BLACKROCK MUTUAL FUND

So far, the rally in the market has been led by high beta stocks, which massively underperformed in 2011. We will closely watch how the ‘risk-on' trade unfolds. We will also keep an eye on the pace of monetary easing, and its impact on various companies. While the problems being faced by corporate India haven't suddenly vanished, it is true that rising equity markets and falling rates can themselves have a benign impact on fundamentals. We will also be keenly looking for any signs of kick-starting of the reforms process by the government, and any steps taken towards fiscal consolidation to form a medium-term view.

— JP MORGAN MUTUAL FUND

Queries may be e-mailed to >mf@thehindu.co.in , or sent by post to Business Line, 859- 860, Anna Salai, Chennai 600002.

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