Mumbai: Stock markets may have recorded one of their worst performances over the past year, but brokers still expect equity to be the best asset class in Samvat 2068—the new year of trading that begins on Wednesday.
Equity markets stand poised to grow 20-30% in the new trading year and create at least Rs 23.72 trillion for investors, wealth management executives said.
Samvat 2068 will be welcomed on the bourses with the traditional hour-long mahurat trading, during which brokers make token purchases and worship Lakshmi, the Hindu goddess of wealth.
Sensex, the 30-share bellwether index of the Bombay Stock Exchange (BSE), lost 19.5% in Samvat 2067—which has two more days of trading left—mainly because foreign institutional investors (FIIs) dumped Indian stocks fearing a recession in developed Western economies.
Money became dearer, companies struggled for working capital, production slumped, earnings were squeezed, stocks suffered and gold outperformed most of the asset classes.
In the past decade, Samvat 2067 was the second worst year after Samvat 2064 of 2007-08, when the Sensex recorded a 51.92% fall in the backdrop of a global credit crisis. FIIs bought Rs 3,330.6 crore worth of Indian stocks on a net basis over the previous Samvat.
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In the new Samvat, domestic equity markets are poised to grow by at least 20%. According to Bloomberg data, total market capitalization of BSE and the National Stock Exchange (NSE) stood at Rs 118.61 trillion as on Friday, with the Sensex trading at 16,785.64 points and NSE benchmark Nifty at 5,049.95 points.
“We are bullish on equities market and expect a 20% gain in the coming Samvat year. Rates are high and there is a shortage of AAA-rated papers, but even a 10-12% rise in corporate earnings will bring the sentiment back. The call will be stock specific and not on any particular index,” said Raamdeo Agrawal, joint managing director, Motilal Oswal Financial Services Ltd.
A 20% growth in markets will mean the creation of at least Rs 23.72 trillion worth of investor wealth.
Sudip Bandyopadhyay, managing director and chief executive officer at Destimoney Securities, said gold may continue to remain strong, but equity will give higher returns.
Even on a conservative basis, at 13 times multiple of the price to earnings ratio on the forward earnings for March 2013, the Nifty should easily reach 5,800-6,000 by the end of Samvat 2068, said Vijai Mantri, managing and chief executive officer at Pramerica Asset Managers Pvt. Ltd.
“Somewhere in the middle of next year, if we look at the earnings estimates for FY13, the Sensex should trade in the range of 26,000-30,000,” said I.V. Subramaniam, director, Quantum Asset Management Company Pvt. Ltd and chief investment officer, Quantum Advisors Pvt. Ltd.
After the fall in Samvat 2067, stocks are mostly trading close to their fair valuations or even below, placing equities in a position to offer better returns than other asset classes in the new trading year, the experts said. Stocks are mostly trading close to their fair valuations and some even cheaper, say the experts.
“Banking will be our top pick as these stocks have been beaten down. There has to be a gain of 18-30% in this sector in the next 12 months. In the next six months, interest rates will come down and then there would be a larger headroom for banking stocks,” said Mantri, who recommends equity as the first choice for investors, followed by debt instruments and gold, respectively.
“Debt will deliver double-digit returns in the next 12-18 months,” Mantri said. “I am not positive on gold. They are going through a cycle similar to what infrastructure as an asset class has been witnessing over the past few years.”
“Once the interest rates start declining, debt funds like liquid and money market schemes will do well,” said Subramaniam.
Subramaniam said apart from banking, he has high hopes from engineering and infrastructure stocks.
“We are postive on equities and gold both. Equities are at fair valuations and fundamentals for holding gold continue to be strong. Near-term FII inflows are wobbly and so the equity markets may remain choppy for some time. If the supply side constraints are taken care of, it will catalyse equities further. And a 15-20% allocations into gold is required for stabilizing the portfolio,” Subramaniam added.
In Samvat 2067, gold has appreciated by 35.44% to Rs 26,608 per 10g, outperforming most asset classes.
Though equity has once again emerged as the top favourite of wealth management advisers, gold continues to be a strong contender. “All countries will continue to beef up their gold reserves in the foreseeable future. Due to its sheer demand, I see gold at $3,000/oz in the next 18-24 months,” said Bandyopadhyay.
Graphic by Sandeep Bhatnagar/Mint