Mumbai: Over the past three Samvat years—between Samvat 2066 and Samvat 2068 that ended on Monday—the BSE’s benchmark Sensex gained just a little more than 8%, but brokerages are optimistic that Samvat 2069 that begins on Tuesday will be better, with commodity prices cooling off and interest rates expected to decline.
The 30-share Sensex closed at 18,670.34 points on Monday, 1,447 points higher than what it was on 20 September 2009—the beginning of Samvat 2066.
In the current Samvat, the Sensex has gained 4.86% after losing at least 17% a year ago.
“Markets are looking positive and I expect a return of 15-20% in the coming Samvat. The government has started policy reforms, which is a positive. Commodity prices and interest rates are also expected to come down and that could boost markets. We are bullish on cement, pharmaceuticals and fast-moving consumer goods,” said Nirmal Jain, chairman, India Infoline Ltd.
Shankar Sharma of First Global, known for his bearish views on the markets, too expects stocks to perform strongly in the new Samvat.
“We are very optimistic on the Indian markets. Inflation and interest rates will come down sharply, and corporate profit growth should be robust due to the low base this year. India should be one of the best performing markets in the world, if not the best,” said Sharma, who is vice-chairman and joint managing director of the brokerage.
India’s industrial production in September contracted 0.4%, while inflation continued to remain high at 7.81%. The Thomson Reuters/Jefferies CRB Index, a gauge of global commodity prices, has risen 9.38% to 292.22 as on Friday, 9 November, from its June low of 267.16.
Despite the government pushing for a rate cut, persistently high inflation has forced the Reserve Bank of India (RBI) to keep rates unchanged even though growth in Asia’s third largest economy has been slowing. In its October policy, RBI left its key policy rates unchanged but cut the cash reserve ratio, or the portion of deposits that commercial banks need to keep with the central bank, to meet the credit demand of companies.
RBI governor D. Subbarao has hinted at a rate cut in January even after raising the central bank’s year-end inflation projection and paring the growth projection.
According to Rashesh Shah, chairman and chief executive officer (CEO) of the Edelweiss group, the key determining factors to market performance in Samvat 2069 will be interest rates and the government’s policy reforms. If things go well, he expects the markets to scale new highs.
“I think Samvat 2069 will be better. There has been significant improvement in market sentiment over the past three-four months. Liquidity conditions are favourable. The key things to watch now are how the government reforms progress and a rate cut by RBI. If these two things happen, markets could see new highs,” he said.
While most experts are bullish on the markets for Samvat 2069, some voiced caution as political uncertainty can spoil the party for bulls as the some major states gear up for assembly elections in the second half of 2013.
“Till March, running up to the budget, the markets could move up. But after that, people will start worrying about elections. It might be similar to the 1996-97 situation, when there were many kingmakers, but no leaders. In case there will be stability and clarity on the government front, it could be the beginning of a new bull run,” said Ambareesh Baliga, chief operating officer, Way2Wealth Brokers Pvt. Ltd.
“Hopefully, corporate margins should expand and oil prices should correct further, which is good for India. World liquidity is flowing into emerging markets. Except for the political scenario, everything is looking good,” he said.
In 2012, foreign institutional investors have bought Indian stocks worth $18.63 billion (Rs.10,228 crore) net of sales.
External factors such as economic recovery in the US, fears of a slowdown in China’s economy, and the euro zone problems are also expected to have an influence on Indian markets.
“More clarity on how the US goes about dealing with the fiscal cliff, and whether Germany does indeed go off track on growth, as does China, are the big two global fears at this point. If the sum total of all these issues can be addressed, partially or totally...it would indeed be a very happy Diwali for all (next year),” said Rahul Arora, CEO, Nirmal Bang Securities Pvt. Ltd.