Samvat 2067, which started on a high note for Indian shares, turned out to be a tumultuous year for stock market investors.
The Bombay Stock Exchange (BSE) benchmark, the Sensex, closed at an all-time high of 21,004.96 on muhurat trading on November 5 last year, the last day for Samvat 2066. Since then, the 30-stock index has lost nearly 18 per cent, its second-worst performance in the last 10 years.
Domestic factors like high inflation, rising interest rates and corporate governance issues weighed on investors’ sentiment in Samvat 2067. They also had to deal with global concerns like slowdown in the US and the euro zone crisis. As Samvat 2067 ends, some of those problems still persist, but the outlook for the next year is not gloomy. The Reserve Bank of India (RBI), which raised its key rates 13 times since March 2010, signaled an end to its monetary tightening cycle on Tuesday, triggering a rally in Indian shares. The bellwether Sensex gained 315 points, or 1.86 per cent, to close at 17,254.86, a day before Samvat 2067 ends.
Inflation and interest cycle coming off from their peak will be a key driver for the Indian stock market, believes Sam Mahtani, director, emerging market equities at F&C Asset Management in London.
Globally, all eyes are fixed on the euro zone as its leaders meet in Brussels tomorrow to address the debt crisis. “Given the severity of concerns, markets could rally if there is positive news flow. However, for these gains to be sustained, structural factors have to kick in like lower interest rates and more policy action by the government domestically and a greater clarity on the solution to euro-zone sovereign debt crisis,” said Bhupinder Sethi, co-head of equities at Tata Asset Management, who is positive on Indian shares on a medium to long-term basis. “In terms of valuations, we are in an attractive zone as we are below long term averages. However, in times of dislocation or bear markets, trough valuations have been even lower,” he added.
At Tuesday’s close, the Sensex trades at 14.67 times its expected earnings for the financial year ending March 31, 2012. The long-term average price-to-earnings multiple for the index has been around 15 times one-year forward earnings. “We have seen good consolidation in markets. It is in a buying zone,” said Motilal Oswal, chairman and managing director at Motilal Oswal Financial Services. “Investors can expect to make 15-20 per cent returns in sectors like banking, two wheeler auto and cement,” he added.
“This Samvat was -20 per cent. Next will be plus 25 per cent,” said DD Sharma, vice president, research at Anand Rathi Financial. Sharma is very positive after the Nifty broke the critical resistance level of 5100, with good volumes. “The index was trading in the 4700-5100 band for several weeks and was finding it difficult to break it. But on Tuesday it broke it and closed near 5200. That is a positive.” There could be some short term hiccups due to the European crisis. “But once that subsides, growth will pick up, since the RBI has also signaled a pause. I am positive about this Diwali and hopeful of a very happy Diwali next year,” Sharma added.