The year 2012 has turned out to be a good year for equities, even though the Indian economy faced signs of slowdown. India was among the top performing emerging markets. MSCI AC World Index gained nearly 12.2% while MSCI Emerging Markets index rose 15.2% during 2012. The Sensex surged 25.7%, while the broader Nifty rallied 27.7% in 2012. The BSE Mid-cap and Small-cap indices outperformed larger counterparts with gained of 38.5% and 33% respectively. Some sectors which gave extraordinary returns in this period include Banking, Realty, FMCG and Consumer Durables. Stocks in sectors such as IT, Power and Oil & Gas didn't do as well in 2012.
We have collated views of experts on how they see market outlook going forward in 2013:
Harsha Upadhyaya, head-equities, Kotak Mahindra AMC:
"With over 25% returns for Nifty, the year 2012 turned out to be much better than the general expectations at the beginning of the year. Beaten down valuations, bottoming out of earnings downgrade cycle and change in sentiments (especially in second half on the back of local government actions and resolution of some of the global concerns) helped the markets during the year. Though the valuations have moved up during the year, they are still below long term average. We are expecting about 12% earnings growth for the market in FY14. Given the fact that the valuations are reasonable and fundamentals are expected to improve over the next few quarters, it is possible that the Indian equities provide double digit returns during 2013. If the government is unable to provide clear direction in terms of fiscal consolidation and impetus for reviving investment cycle, we believe that could turn out be the biggest risk to equities in 2013.
We expect interest rate sensitive sectors to do perform better in 2013. We expect banking and financials, automobile and media to broadly outperform the market. Possibility of mergers and acquisitions in specific cases could also be good investment case in 2013, as many sectors have seen regulatory changes, need for capital and also interest from multinational companies."
Lalit Nambiar, fund manager - equities, UTI Mutual Fund:
"Based on fundamentals such as earnings and RoE, Indian equities are fairly priced for the short term. In the medium term we have elections coming up in 2014 or even earlier, so the picture is a bit unclear on whether the government would be able to achieve a balance between populist measures on the one hand and fiscal prudence and growth imperatives on the other. But for the long term (3 years plus) considering India is one of the very few places with a strong structural growth potential based i) on the inadequacy of its infrastructure and ii) the projected change in its demographics, Indian equities are an extremely attractive investment avenue.
Based on current valuations, I would say we are cautiously optimistic on 2013. Triggers would be the budget, policy action on infra and global events including resolution of the US fiscal cliff and a smooth bailout for Spain.
I would selectively prefer Healthcare and Banks, but chances are this year is unlikely to be about broad sector calls. In the past few years, if you got the sector right but the stock wrong, you could still outperform your benchmark, as stock price movement correlations were high within a sector given that events were big and at the very macro level. But now with most portfolios already positioned for the more obvious trends such as defensives and rate cycle, and events likely to be more company specific, 2013 looks like it will be the year of the stock picker. Thus it will not."
Atul Kumar, senior fund manager, Quantum Mutual Fund:
"We continues to have a positive outlook for Indian equities. An equity valuation at this point of time looks relatively reasonable. With all the macro noise around us, in the end we are bottom up stock pickers and disciplined value managers. Our challenge remains to understand and analyze businesses, to decipher the valuations ascribed to these businesses in the stock market and to understand the ability of the management to guide these businesses in challenging times. With headlines changing so rapidly, nervous money flows can create interesting opportunities."
Jagannadham Thunuguntla, head of research, SMC Global:
"We expect 2013 will also be a good year and we may see Nifty near 6,500 levels. Market volatility will be a way of life in 2013 across the globe, as Europe continues to work on solving its debt problems, China's growth remains closely audited, and the U.S. economy in fits and starts. The ongoing hottest topic ''the fiscal cliff'' which has been seen as a major crisis is likely to end up being a non-event. It has been presumed so because the cliff has to get resolved one way or other. If it fails it may bring recession to the US economy. For the year CY 2013, infrastructure, power and metal sectors may see good momentum building in the stocks. My hot picks are NMDC, Dr. Reddy Laboratories, IL&FS Transportation Networks, Dena Bank, Development Credit Bank, Adani Port & Special Economic Zone and HEG.
On the domestic front, the recent government initiatives to attract foreign investment, to improve the business climate and to reignite the nation's declining economic growth, will remove flurry from investors mind. The government also has moved to allow greater foreign investment in the broadcasting industry, airlines, insurance and pension. In this situation, I think stock-picking will make a good return, and market participants focusing on particular stock opportunities will do well given this backdrop. Not to ignore, the resolution of the so-called ''fiscal cliff'' issue in US could act as an accelerator to higher stock prices. Moreover the Reserve Bank of India policy action and the earning season has also influential role to play. Concluding, I expect the year 2013 would be much more settled year than 2012, and the slowly-improving global economics and increasing liquidity across the globe will result in increased trading and higher stock prices."
AK Prabhakar, VP, research head, Anand Rathi Securities:
"We feel that 2013 should be better year, we have a growth estimate of 5.8% for FY13 and with rate cuts coming in from Q1CY2013 will boost the demand scenario as well. Also inflation peaking out will be an added advantage. Slow and gradual pick up in manufacturing and trade that have been hard hit will lead to overall improvement in growth scenario. GDP growth estimated from FY14 is 6.6%.
Looking at the investment scenario it is very company specific whether they would like to invest in other markets depending on the opportunities available. India is still a better play than its peers as the growth is still muted in other countries compared to India. Therefore it will depend on the preferences and opportunities available to the companies for investing be it other markets or India itself. Our top picks for 2013 are Thermax, Reliance Capital, Bharat Forge, Hsil, JK Cement, Karurvysya Bank."
Daljeet Kohli, head research, IndiaNivesh Securities:
''2013 will be year of stock selection and wide dispersion within the sectors. Stock performance will vary diametrically within the sector depending upon the specifics. Macros will be positive for the equity markets in 2013 while ground realty in terms of corporate earnings will take time to recover. Our markets are now fairly priced and many stocks are priced to perfection hence risk of correction are much higher. In our opinion, it would be reasonable to expect 10-12% up move in Sensex in 1 year time frame (Dec 2013). We think volatility will be quite high and advice investors to book out after reasonable returns. Do not expect one way secular bull-run. Be mindful of valuations of stocks."