Jagannadham Thunuguntla, Strategist & Head of Research, SMC Global Securities
What is your Sensex target by December 31, 2012? Why?
Considering the current domestic as well as global macro environment, markets are expected to remain in a range in the coming year. However, there is a hope that things would start looking up when the RBI starts loosening the interest rates in 2012. We are expecting interest rate cut of about 100-125 bps during 2012. At best we can expect the Sensex to end the next calendar with a marginal returns of around 10% at around 17,000 levels.
How much downside you see for Sensex and Nifty from present levels (Sensex – 15,275, Nifty – 4,578)? By when do you think market will bottom out?
There seems to be significant downside risk to the markets, especially once the quarterly results start coming out in January, 2012. Also, Jan-Mar quarter results are also expected to be quite bad. Thus, we may see a further downside in the markets in April too. Over and above that, the finances of the Central government are expected to deteriorate further with various social schemes being announced recently and more expected in budget in February, as many politically important states go to election. One can expect the Sensex to down up to 11,000 mark and the Nifty to around below the 3800 mark in a worst case scenario. These levels can be further breached if the crisis in Euro region deteriorates further or if a global bank goes bankrupt.
What is your Sensex EPS estimate for FY12 and FY13? What are the possibilities of this estimates getting revised?
For FY12, Sensex EPS estimate is about Rs 1050-1100. And, For FY13, EPS estimate is about Rs 1150-1200m
Which are the three large-cap stocks you will recommend investors to buy at current prices for 2-3 years time horizon? Please give a brief rationale for your recommendations.
ITC, Tata Motors, SBI. If markets remain under pressure, even these stocks can fall further. But, whenever recovery starts, these stocks can be expected to recover fast
Which are the stocks/sectors you will avoid in 2012? Why?
One should definitely avoid the real estate, infrastructure and aviation in 2012. Also, one should be careful while investing in “appearing-to-be-defensive” sectors like IT, Pharma and FMCG too as valuations have stretched in these sectors. The commodity price risks in FMCG and the expected political backlash from the US, as it goes into election mode, is being completely ignored by the markets as of now.
Which are the key events/triggers (both negative and positive) to look for from the stock market perspective in 2012?
In the immediate term, one should watch out for the coming quarterly results in January and then the Union budget in February, which is expected to give the markets a decisive direction, either in the upwards direction or in the downward direction.
Then, in the middle of the year, if the inflation cools down, then one can even expect the RBI to loosen the monetary policy so as to spur growth.
Further, from international perspective, possible Euro breakup can be one defining event. Also, elections in US and several European countries are also key events. One should also keep possible real estate bubble burst in China is also in radar.
Rupee has fallen 20% against the US dollar this year, affecting stock returns of foreign investors. How will this impact the market outlook for 2012?
The 20% fall in rupee has been very steep and it occurred over a period of just 2-3 months, which is considered very short in currency markets for such a big fall. This has been primarily due to the rapidly deteriorating fiscal situation of the economy. Considering the slew of social schemes being launched by the UPA government, even foreign investors have realized that this just the beginning and the situation will only get worse from here on before getting better. Thus, they’ll be cautious before making any fresh allocations to India in their portfolios in the new calendar year. This may lead to sideways or range-bound market for the next couple of months. However, in the 2nd half of the calendar year 2012, confidence of foreign investors might get restored once the performance of India Inc. starts to improve or at least stabilizes after the RBI starts reducing key policy rates in the coming months.
