The market could see an inflection point in March, given the number of critical events that are lined up, Pratik Gupta, head of equities, Deutsche Equities (India), tells Samie Modak. Edited excerpts:
What is the market mood at the moment?
We are in an extremely pessimistic environment. Hence, investor sentiment is weak. Most investor classes are still risk- averse as far as the equities are concerned. But, this is actually a bullish sign, as it is dangerous to be on the same side of the consensus when everybody is so bearish.
Where do you expect the market to end in 2012?
In 2011, we started on a very good note and ended on a weak note. This year, I feel it will be the other way round, since we are starting on a weak note. But, I feel we will end the year on a good footing. We have set our year-end target for the Sensex at 18,000, which means about 16 per cent returns for the year.
What factors were responsible for India’s underperformance in 2011?
India got affected both by international factors, which led to poor risk appetite for emerging markets and our own domestic factors. Oil prices, inflation, interest rates, fiscal deficit and policy inaction got us into that position in 2011.
What could be an inflection point for the market to turn?
March will be very critical for the market. It could potentially be the inflection point. After the state election results are declared and the election commission’s code of conduct comes to an end, we could see a pick up in policy making after that. You also have the Union Budget and the central bank’s policy review — that’s when our economist expect rate cuts to start. Lastly, internationally you have the refinancing programme in Europe. Depending on how all these things pan out could lead to some kind of inflection.
How do you expect the market to behave till March?
The market could trade sideways, barring any major shocks.
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India is trading below its long- term averages. At the same time, we are at a premium to some of our peers. How are valuations looking to you at this juncture?
Valuations have come off compared to their own history. But, the growth and return on equity (RoE) outlook has weakened. As far as valuations to other markets are concerned, the premium India used to enjoy has also come off. Having said that, India has always enjoyed a premium because of the structurally higher growth rates and RoEs.
In our view, India will continue to trade at a premium but the question is what should be the magnitude of the premium. It will depend on your longer term view and also the global and Indian macro for 2012.
Globally, there should be no accidents in the euro zone. Domestically, there has to be monetary easing and some policy action after the elections. The Budget shouldn’t be very populist. All these factors combined will lead to a re-rating of the Indian markets.