Mumbai: The Indian stock market will take the likely rollback of the fiscal stimulus in its stride, thanks to robust growth in corporate earnings and a steady flow of liquidity, said six investment experts who participated in the Mumbai leg of Mint’s four-city event on the coming Union Budget.
Indian stocks are likely to trade in a tight range in this year, in sharp contrast to the manic volatility in 2008 and 2009, they said.
The consensus view was that the benchmark indices are likely to end the year plus or minus 10% from their current levels, despite the Indian central bank tightening monetary policy.
The government has indicated that it will soon begin putting its public finances in order as the economic recovery gathers steam. The fiscal deficit is currently at a 15-year high.
While the Union Budget may cause some pain to the local equity markets in the short term, it will be good in the long run for the economy and stock markets.
“Whatever happens in the Budget, (be it) withdrawal of sops, petrol prices (increasing), these are good in the long run,” said Ullal Ravindra Bhat, managing director of the Indian arm of Dalton Strategic Partnership Llp.
While there were a few concerns about earnings growth and liquidity, the six experts said Indian stocks were not cheap, going by price-earning multiples and the ratio of price to book value—two popular share valuation metrics.
“Anything worth buying in the growth sectors in India is way too expensive,” said Shankar Sharma, vice-chairman and joint managing director, First Global, a brokerage.
Sharma, known for his bearish views, said that in the “first half (of 2010), markets would move down by 25%...probably end 10% down for the year.”
However, others were more positive. The fact that capital flows were likely to continue added to the mood of cautious optimism.
“India will continue to be an attractive destination in terms of inflows,” said Pramit Jhaveri, head of global banking, India, and vice-chairman, Asia investment banking, at Citigroup.
“Asia is seen as a high-growth area relative to the rest of the world and India is a bright spot,” said S. Naganath, president and chief investment officer of DSP BlackRock Investment Managers Pvt. Ltd.
Narayan Ramachandran, chief executive officer?(CEO) and country head, Morgan Stanley India Co. Pvt. Ltd, was the most optimistic among the group, expecting “blowout earnings” of up to 30% and markets growing 15-20% from here.
Still, the government’s disinvestment programme and the line-up of companies waiting to raise money by selling shares could dampen the growth in the secondary market, according to Rashesh Shah, chairman and CEO of Edelweiss Capital Ltd, a listed brokerage.
“These will prevent the market from galloping away,” he said.