As the highly eventful Hindu calendar year Samvat 2063 comes to a close, the equity markets are now bracing for more fireworks in the coming year as well, despite visible signs of a slowdown in corporate earnings and purchases by foreign institutional investors (FIIs). For Samvat 2064, which begins with the Muhurat trading on Friday, the forecast by most market experts is clear: the robust fund flows into Indian equities will continue ? both from overseas and from within the country.
Needless to say, the stage for this optimism has been set by the year gone by. Despite bouts of intense volatility, excessive capital flows from abroad and some stern regulatory action on the controversial participatory notes (PNs), the equity markets have kept up their momentum, with the 30-share Bombay Stock Exchange Sensitive Index recording a hefty return of around 50%. During the year, the Sensex has seen several new peaks and some sharp dips, but overall, the trend has proved the bulls right: there is a sustained upward movement in stock prices overall, despite short-term blips. Starting from 12,709 on October 20, 2006, the Sensex has, since then hit a series of new highs, touching the 20,000 mark on October 29, 2007, and closed at 19,290 on November 7. During the year, the FIIs have pumped in a staggering $18.7 billion. There?s been high drama during the year gone by. The highest gain of the year was recorded on October 23 (878.85 points), and the biggest single-day fall of the year was on October 18 (of 717.43 points) in the aftermath of the Sebi discussion paper proposing stricter norms for PNs.
So, how do the market experts view the ensuing trading year?
Says UK Sinha, chairman, UTI Mutual Fund, the country?s third largest asset manager: ?The economy will continue to do very well. Domestic and foreign fund flows will be very robust next year too. I feel the sub-prime crisis in the US is yet to unfold fully, and there?s more coming. Owing to this, capital will flow into emerging markets, and India will get a good chunk of that capital.?
Agrees ICICI Securities MD & CEO
S Mukherji: ?Like water, capital will find its own level. Capital will continue flowing in. The slowdown in FII flows of late is not significant.? Sinha adds that domestic savings will also continue to pour into Indian equities. But he adds a caveat: ?I don?t think investors should expect the same spectacular returns from the market year after year. They should also moderate their expectations. Things will, however, be positive for the markets.?
Seconds investment analyst SP Tulsian: ?The slowdown in FII inflows of late is a temporary phenomenon. There will be no concerns on this going forward. As FII registrations grow, so will inflows.? Tulsian points out that with India being a $1 trillion economy, roughly about $10 billion (or 4%) of the 25% savings is flowing into the markets. This figure next year is expected to go up to $20 billion. Add to that the FII flows, which are expected to rise beyond $20 billion next year, and the markets may continue to be on celebration mode. Adds Tulsian: ?Rather than talk of a target Sensex level of 21,000 plus, it?s better to talk of the fact that most don?t see the Sensex falling below 17,500. Inflows will continue both on account of liquidity reasons and fundamentals.? But what about the volatility and the sharp dips? That, experts like Tulsian say, is not going to affect the longer term investor. ?It?s the day trader or the short-term investor who will be worried about these sharp dips.?