Foreign funds, rate cut could extend equities rally
about despite sluggish factory output front, recalcitrant inflation and continuing bad news on the twin deficits — fiscal deficit and the current account deficit.
The broad consensus is that in 2013, the market rally is expected to be based more on expectations of a sharp improvement in the macroeconomic indicators — driven by the impending rate cut, rollout of more reforms and recovery in the broader economy — than on the prospect of improvements in the corporate profit growth on the ground.
This is buttressed by the trend this year, when the index recorded a 25 per cent gain in the last 12 months even as the trailing twelve-month earnings of the companies constituting the BSE Sensex grew at a subdued 8 per cent.
Apart from the rate cut and reform theme, which is widely expected to seen gainers in consumer sectors such as FMCG, banking and retail, many analysts are getting more specific on individual stocks. Brokerages such as Bank of America Merrill Lynch have said they are overweight on rate sensitive sectors like autos (Maruti and Tata Motors), telecom, financial sector (ICICI Bank, HDFC Bank), pharma (Lupin and Glenmark) and real estate (DLF).
On the other hand, the sectors that took a beating during the current year, including businesses with big global operations and those sensitive to a depreciating rupee such as IT, power, metals, and oil and gas underperformed the benchmark indices, could be under pressure the next year as well.
OVERARCHING THEME
Foreign investors, who have
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