Mumbai, June 6: THE volatile stock market is expected to rise steadily over the next year, with the benchmark index gaining 26 per cent by next March, a Reuters poll of 11 brokerages and fund managers showed on Wednesday.

From Tuesday’s close, The Stock Exchange, Mumbai benchmark index of 30 leading stocks is forecast to rise 4.7 per cent by end-June, 10.9 per cent by late September and 21.7 per cent by end-December, the poll found by averaging responses.

The near-term outlook is clouded somewhat by US earnings worries and local factors, such as the introduction on July 2 of a new trading system which may initially absorb liquidity from the market.

“A lack of positive news flow, earnings worries in the US and technical factors like reduced liquidity in the domestic market would have an impact,” said SG Asia head of research Sangeeta Purushottam.

Yet the benchmark index, which closed at 3460.04 on Tuesday, is forecast to rise to 3,625 points by end June, 3,838 by end September, 4,210 by late December, and 4370 by the end of the financial year next March 31. The index was up 0.22 per cent to 3467.71 in afternoon trade on Wednesday.

Analysts said modest short-term gains would come from sector picks. Old economy sectors like cement and steel attract attention due to factors like higher infrastructure spending.

But the oil and refining industry is everyone’s favourite on hopes of higher profits after controls on prices of refined oil products are relaxed next April. Private firms which invest in the oil sector are also allowed to begin selling transport fuels directly to end-users.

The view on the widely-tracked software industry is cautious in the short run on fears of a fresh bout of profit warnings by US technology firms. But over a year, analysts see smart gains on hopes of global technology spending will revive.

The overall market is also expected to gain by December as investors become comfortable with new trading products like index and stocks options.

From July 2, the top 251 traded shares will move to rolling settlement, where trades must be squared each day, and The Stock Exchange, Mumbai simultaneously ends a unique carryforward trading facility.

The carryforward system — which until recently accounted for 90 per cent of turnover on the BSE — allows investors to buy or sell shares by paying a small margin — enabling them to take on bigger positions than they could otherwise afford.

The Securities and Exchange Board of India (Sebi) has also approved the start of options trading in the index and top shares from early July. Traders fear volumes will initially drop as investors take time to get used to the new system. The ban on “badla” or the carryforward system will result in a purely cash market by ending trading on credit.

“In 1994, the last time there was a pure cash market, volumes in the top five traded stocks dropped almost 76 per cent,” said Motilal Oswal Securities head of institutional broking Navin Agarwal.

But trading volumes are forecast to pick up by September as investors come to grips with the new trading system, and the US economy is expected to perk up, the survey found.

-- Reuters