Pointers to possible gains are there

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SummaryThe year 2012 has been an interesting year in itself for the Indian equity markets.

India remains attractive to foreign investments

The year 2012 has been an interesting year in itself for the Indian equity markets. After a sharp up-move in the first two months, markets drifted downwards given the global recession, delays in decision making on reforms and the threat of India’s ratings being downgraded. However, in the last two months, the markets have rallied significantly and have provided the much-needed relief to participants.

However, as we near the close of 2012, the one question that dominates our mind is—will this positive upswing continue well into 2013?

The new year heralds many new resolutions especially regarding to financial discipline and planning of investments and assets and as such, is the time when we decide, either as retail or institutional participants to participate or not in equity. Given the market’s performance so far, here are my views about what we can expect will happen in 2013.

I believe that, there are several factors which point to possible gains in 2013. Having said that, we need to be cognizant of the potential headwinds.

The reasons for such positive expectations are many, starting with the fact that the Indian government, after months of indecision, has started pushing reforms. The fuel subsidy is sought to be cut and FDI in various sectors is sought to be allowed or the respective caps increased. These reforms are a good first step taken by the government, I feel. The government has opened up the doors for more funds to come in. This may help in our funding needs and may also curb rupee depreciation over a period of time. Looking at the current scenario, I expect the government to take up reforms in other areas like insurance, banking, pensions, aviation, etc in the short-term.

The RBI is also looking up to government reforms and concrete action on the same may make the central bank it change its monetary stance in favour of easing. Also, while WPI inflation has remained at elevated levels, the core inflation has been contained at relatively lower levels. If these factors come true, corporate revenue growth and profit growth may be higher in the coming quarters. Consequently, the downgrades might stop atleast and that should be positive for markets.

From a global perspective, the EU problems are well-known and are likely to be discounted by the markets. That economic zone is expected to remain stagnant atleast in the foreseeable future,

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