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Top brokerages were off target on 2011 forecasts

Top brokerages were off target on 2011 forecasts
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First Published: Thu, Dec 29 2011. 11 29 PM IST

Updated: Thu, Dec 29 2011. 11 29 PM IST
Mumbai: Indian markets saw the second biggest fall in a decade this year, the worst performance among the 10 biggest markets in the world in dollar terms. The Sensex, the Bombay Stock Exchange’s benchmark equity index, ended trading at 15,543.93 points on Thursday, falling 24% during the year. Friday is the last trading day of this year.
Analysts at investment banks typically prepare a forecast on market movement for the year ahead. A few get it right, while most find their predictions wide off the mark.
At the start of 2010, most analysts of top brokerages were bullish, and their forecasts went wrong. Some had sounded a note of caution in their outlook reports for 2011, but nearly all analysts expected the Indian stock market to rally from the December 2010 level of about 20,500.
Most analysts correctly foresaw a deterioration in the current account deficit, but made projections for investments, economy and earnings growth that appear overly optimistic, with the benefit of hindsight.
Here is a snapshot of market projections for 2011 made a year ago:
Also See | (Graphic)
Citigroup: Sensex target of 22,000
Aditya Narain, head of research at the Indian arm of Citigroup Global Markets Inc., predicted the Sensex would rise by about 15% in a strategy note dated 30 November 2010. Narain wrote that 2011 would be similar to 2010, but “the market pace should be more measured and predictable, volatility and uncertainties fewer, with less of the mid/small cap bias of 2010.”
He also wrote that India’s macroeconomic environment would hit a steady state, with growth inching up to 8.6% and inflation falling to 6% levels.
The actual turn of events was almost opposite to Narain’s predictions. The macroeconomic environment was anything but stable, and markets remained volatile, while inflation persisted above 9%.
Credit Suisse: Sensex target of 21,650
The Swiss investment bank was one of the earliest to predict that Indian markets would underperform its Asian peers in a note dated 23 November 2010. Its prediction was, however, based on the assumption that a global recovery in 2011 would favour export-oriented markets such as Taiwan and South Korea.
Credit Suisse still had an optimistic Sensex target based on their view that Sensex firms would see an earnings growth of 20%. Consensus earnings growth estimate for Sensex firms in the current fiscal year have fallen to the 10-12% range.
Morgan Stanley: Sensex target of 22,100
Ridham Desai, head of research at Morgan Stanley India Co. Pvt. Ltd, anticipated a moderation in valuations, but maintained in a 1 December 2010 note that India would remain in a “structural bull market”. Desai’s top sectoral picks—industrials and commodities—turned out to be underperformers, while the sector he was underweight on—consumer stocks—was the biggest outperformer of 2011.
Ambit Capital: Sensex target of 15,000-23,000
Saurabh Mukherjea, head of equities at Ambit Capital Pvt. Ltd, took the safest option and predicted a wide Sensex range that was too hard to miss, in a 23 December 2010 note. Among Mukherjea’s top sectoral picks, technology was an outperformer while the other two sectors in which he recommended an “overweight” stance—commodities and capital goods—were among the biggest losers in 2011.
Nomura: Sensex target of 22,100
The Japanese investment bank was wide off the mark in its Sensex forecast just like the other major brokerages. Yet, Prabhat Awasthi, head of research at Nomura Financial Advisory and Securities (India) Pvt. Ltd, did manage to raise some red flags, in a 15 December 2010 note.
“We see downside risks to the 20% earnings growth expectation for 2012,” Awasthi wrote. He predicted that inflation might continue to rise and highlighted that the outlook for a recovery in the investment cycle was uncertain. His prediction that defensive sectors such as consumer stocks would outperform also turned out to be correct.
Graphic by Yogesh Kumar/Mint
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First Published: Thu, Dec 29 2011. 11 29 PM IST
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