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Stock markets in 2012: Survey says reforms will help prospects

European sovereign debt crisis and slowdown in the US economy, which are expected to spill over into the coming year, will drive the index movement.

B.S. Srinivasalu Reddy | December 23, 2011 | Updated 09:41 IST

Most of the punters foresee the bellwether BSE Sensex peaking in the range of 18,000-20,000 in calendar 2012. Responding to a survey conducted by Mail Today on Stock Market-2012, Rikesh Parikh, vice-president of Motilal Oswal Securities projected that the Sensex could move in the range of 14,400 to 18,800 points in 2012.

Kishor Ostwal, chairman and managing director (CMD) of CNI Research has put the figures in the range of 15,000 to 20,000, while projecting parallel figures for Nifty of the National Stock Exchange (NSE) in the range of 4,450-6,000.

Usually, index movements depend on various factors - some predictable and some unpredictable. Among the predictable bugbears of 2012 include European sovereign debt crisis and slowdown in the US economy , which are expected to spill over into the coming year as there is no light seen at the end of the tunnel on these issues yet.

Dwelling on some factors that have changed the macro and corporate landscapes of India in the last few months, Ostwal said, "India has external debt of $238 bn. A 25 per cent drop in rupee value means $60 bn rise in debt and assuming four per cent interest rate, the interest burden will rise by a whopping Rs 15,000 crore."

Rupee has already weakened
by over 16 per cent from the high of 43.85 against the dollar seen on July 27.

Of late, domestic worries on inflation, fiscal deficit and lack of reform initiatives, leading to a slowdown in the economy, have taken centre-stage in the last few months.

Sandip Sabharwal, chief executive officer (CEO), PMS, Prabhudas Lilladher Group, said, "From here on domestic economic data will become more important. The driver of the markets is likely to be the steps taken to revive the economy rather than global events from here on."

"It is likely that economic activity would have bottomed out in India now. The key will be to see the pace of revival. The revival will be slow given the way the economy has come to a standstill due to extremely tight liquidity conditions and high interest rates," Sabharwal added.

Sabharwal gave the widest band to the Sensex in the next 12 months - In the worst case scenario it could be 14,800-15,000 points (at 12 multiple of price to earnings ratio), in the best case it could even touch 26,000-point mark (20 P/E). Even the current winter session of Parliament has proved to be a dampener till now. Till the crucial state elections are completed in a couple of months, the Centre is unlikely to take any bold decisions. Graft, black money and scams are taking their toll on reforms.

"The ultimate market direction depends on inflation, which can allow rate reversal and in turn bring the economy back on the growth trajectory. China has done well on these fronts and cut even rates, but somehow India has failed in showing prudence on this front," Ostwal said. India is paying the price for using monetary measures alone to control inflation. Economic growth has come down to 6.9 per cent and could slip to even six per cent as inflation is still not dealt with. The claim of inflation coming down to six per cent or below is hanging fire since April 2010.

"If the situation gets extended in the Finance Bill 2012 (Union Budget) then for sure the doors of lower levels will open and investors will be exposed to more risks," Ostwal added.

Courtesy: Mail Today 

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