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Brokers see pain before gain next year

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Brokers see pain before gain next year
Mehul Shah & N Sundaresha Subramanian / Mumbai December 27, 2011, 0:18 IST

Falling inflation, easing euro crisis seen as lights at the end of the tunnel.

After a disastrous 2011, investors are pinning hopes on next year. Top sell-side analysts believe though there is more pain ahead, 2012 is likely to end on a positive note.

The Bombay Stock Exchange (BSE) benchmark, the Sensex, could end 2012 between 17,000 and 19,285 levels, as the central bank starts easing its monetary policy and on possible resolution of the euro zone debt crisis, indicate estimates provided by leading domestic brokerages to Business Standard.

However, before this happens, things could get worse. A 5-15 per cent downside for the 30-stock index is likely, due to the worsening macroeconomic scenario in India and concerns surrounding the euro zone debt crisis. Most brokerages expect the to bottom out between 13,500 and 14,500 in the first half of 2012.

IIFL (India Infoline), Motilal Oswal, Kotak Securities, Religare Securities, Angel Broking, Emkay Global, Avendus Securities, Nirmal Bang and SMC Global responded to a detailed questionnaire sent by Business Standard. These brokerages were asked to give their Sensex/target by December 2012, possible downside for key indices from the present levels, Sensex earnings estimate for 2011-12 and 2012-13 and key triggers to look for in 2012.

Domestic factors like high inflation, rising interest rates and governance issues, coupled with global concerns like the and slowdown in the US, sapped investors’ appetite for Indian stocks this year. At on Monday’s close of 15,970, the Sensex has lost 22 per cent this year so far, making India one of the worst performing markets in the world.

Market experts believe some of these concerns may continue to weigh on Indian shares in the near term.

“Multiple headwinds, such as fast decelerating corporate earnings growth, policy paralysis, private investment inertia, fiscal and current account deficits and rupee depreciation, will continue to weigh on the market in early 2012,” said Amar Ambani, head of research at IIFL. “However, reversal of and the rate cycle could drive material recovery in the second half.”

  Possible downside  from current level Target by Dec 31, 2012 Sensex EPS Estimate
(in Rs)
Sensex Nifty Sensex Nifty FY12 FY13
IIFL (India Infoline) 5-10% 5-10% 17,000-18,000 1,110 1,225
Motilal Oswal 13,500-14,500 19,285 1,131 1,331
Kotak Securities 20% ] 20% ] -
Religare Securities 4,200-4,300 18000 1,100 1,225
Angel Broking 15,000

17,500 1,112 1,308
Emkay Global


- -
Avendus Securities 15% 15% 20% ] 20% ] NA NA
SMC Global 11,000 3,800 17,000   1,050-1,100 1,150-1,200
Nirmal Bang 14,700 4,400

5,500-6,000 1,100-1,125 1185 – 1210
Source: Survey reports
AMAR AMBANI“Multiple headwinds will continue to weigh on the market in the first half of next year. However, reversal of inflation and the rate cycle could drive material recovery in the stock market in the second half of 2012.”  Read more
Head of research, IIFL
DINESH THAKKAR“The markets may witness some downside and see the 15,000 level. However, in the absence of any catastrophic event that could significantly drag down the markets, we expect the markets to find valuation support at this level.” Read more
Chairman and managing director, Angel Broking 
ANAND SHANBHAG“We expect Sensex to deliver at least 20% return over the next year. This would be driven by a retreat of many negative macro-economic factors that eroded sentiment in 2011, such as interest rates, inflation and the economic downturn.” Read more
Executive director & head of research , Avendus Securities
GAGAN RANDEV“One may expect a healthy rise in the stock market in second half of 2012 as we see some rounds of easing of interest rates, reduction in inflation and containment of the euro zone problem.” Read more
CEO, Religare Securities
ANISH DAMANIA“We believe that the downgrade in earnings will continue through the next six months at least. Hence, the market will continue to remain under pressure, notwithstanding strong bear market rallies.” Read more
Business Head-Institutional Equity, Emkay Global Financial Services Ltd
RIKESH PARIKH“Downside range for Sensex in such a pessimistic environment could be anything between 13,500 and 14,500. We believe that the market may bottom in the fourth Quarter of FY12.” Read more
VP-Equities, Motilal Oswal Financial Services
DIPEN SHAH“We believe that, markets can give about 20% returns in the next calendar. In terms of valuations, markets are trading at about 12x FY13 consensus estimates, which is at the lower end of the long-term trading band.” Read more
Head, Fundamental Research, Kotak Securities
RAHUL ARORA“I think pessimism is at its highest right now with consensus stating that the market may have a lot more downside to it even from current levels but my view is that this pessimism is overdone.” Read more
CEO, Institutional Equities, Nirmal Bang Equities Private Ltd

After raising its key policy rates 13 times since March 2010 to tame inflation, the Reserve Bank of India (RBI) kept these unchanged in its monetary policy review this month and signalled a reversal in its stance. Most economists now expect the central bank to start cutting policy rates after March, as inflation starts moderating. The wholesale-price based inflation stood at 9.11 per cent in November. expects this to ease to seven per cent by March 2012.

“We assume there will be no defaults or bankruptcies in Europe and the US may continue its slow growth. This may lead to some moderation in global commodity prices, including that in crude oil. Locally, interest rates are expected to come down in the next financial year. We think that tough reforms measures will be initiated by the government in the next calendar year,” said Dipen Shah, head of fundamental research at Kotak Securities. “All these factors provide the ideal setting for markets to move up next year.” He expects the Sensex to deliver 20 per cent returns in the next calendar year.

The movement of the rupee against the dollar will also be crucial in determining the fortunes of Indian stock markets in 2012, experts say.

“Factors leading to the depreciation of the rupee are u

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