Brokers see pain before gain next year

After a disastrous 2011, stock market 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 Sensex 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/Nifty 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 euro zone debt crisis 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 inflation and the rate cycle could drive material recovery in the second half.”
 

CAUTIOUS OPTIMISM
	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

—

4200

—

—-- Avendus Securities15%15%20% ]20% ]NANA SMC Global11,0003,80017,000 1,050-1,1001,150-1,200 Nirmal Bang14,7004,400

—

5,500-6,0001,100-1,1251185 – 1210 Source: Survey reports  

EXPERT VIEW

“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
AMAR AMBANI
Head of research, IIFL

“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
DINESH THAKKAR
Chairman and managing director, Angel Broking 

“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
ANAND SHANBHAG
Executive director & head of research , Avendus Securities

“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
GAGAN RANDEV
CEO, Religare Securities

“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
ANISH DAMANIA
Business Head-Institutional Equity, Emkay Global Financial Services Ltd

“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
RIKESH PARIKH
VP-Equities, Motilal Oswal Financial Services

“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
DIPEN SHAH
Head, Fundamental Research, Kotak Securities

“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
RAHUL ARORA
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. RBI 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