The year 2011 will be a range-bound year for the Indian stock market , with close to zero per cent returns which will see the year end on a weak note, according to Bank of America Merrill Lynch.
Jyotivardhan Jaipuria, India-research head of Merrill Lynch , is of the view that India is facing a lot of headwinds mostly macro in nature. Leading the fray is rising inflation which would compel the Reserve Bank of India (RBI) to raise interest rates further.
“This will hurt cost for companies and hurt demand on the margin. At the same time, industrial output numbers are not going to be very robust,” Jaipuria said in his equity market outlook for 2011. “We’ve got quite a few headwinds in the short term. I think markets will correct,” he added.
Indranil Sengupta, India economist for Merrill Lynch, is of the view that inflation is likely to trend around 6.5%, higher than the RBI target of 5.5%. “This means we will continue to see policy rate hikes by the RBI,” said Mr Sengupta.
“However, the pace of tightening is likely to slow down over a period,” he added. He expects the central bank to hike rates in May 2011 by about 25 bps and roll back statutory liquidity ratio (SLR) by 50 bps. SLR, or the portion of government securties that banks have to mandatorily hold, currently stands at 24%. He terms 2011 as the year of the mid-cycle blues; the three mid-cycle blues being IIP growth expected to slip to 5.5% in 1Q11 questioning growth, inflation to bottom out in mid-2011 provoking concerns over overheating and lending rates to go up end-2011 , sparking tight money concerns.
Against this backdrop, Sengupta expects the rupee to weaken in 2011, remaining range-bound around 45-46 levels for a greater part of the year, and sees the dollar becoming stronger.
Jaipuria is of the view that the year ahead will see earnings downgrades. “Somewhere, a combination of all these should lead to earnings being downgraded, and probably lead to some derating of the market,” he said. He sees institutional flows moderating in 2011.
“FII flows will be lower this year. We saw institutional investors pump in over $29 billion in 2010, but some of it will reverse this year as money finds other attractive markets,” he said.
Jaipuria says that post-correction, valuations have got close to the long-term average. “Markets are now trading at roughly 15-times one-year forward earnings. To that extent, that is what will probably provide some support over the next one year after we’ve gone through the next three-four months, which will see headwinds.”
On the positive side, he is of the view that India is still an economy that will do an 8%- odd gross domestic product growth. “It’s still an economy, where, in spite of all the downgrades, we will see earnings growth of 15-17 %.”
Atul Singh, head global wealth management and investment, believes that the equity market will offer investors the oppurtunity to get invested in their preferred sector. “Investors should raise cash at short-term rallies,” he said.
Source: Economic Times
Jyotivardhan Jaipuria, India-research head of Merrill Lynch , is of the view that India is facing a lot of headwinds mostly macro in nature. Leading the fray is rising inflation which would compel the Reserve Bank of India (RBI) to raise interest rates further.
“This will hurt cost for companies and hurt demand on the margin. At the same time, industrial output numbers are not going to be very robust,” Jaipuria said in his equity market outlook for 2011. “We’ve got quite a few headwinds in the short term. I think markets will correct,” he added.
Indranil Sengupta, India economist for Merrill Lynch, is of the view that inflation is likely to trend around 6.5%, higher than the RBI target of 5.5%. “This means we will continue to see policy rate hikes by the RBI,” said Mr Sengupta.
“However, the pace of tightening is likely to slow down over a period,” he added. He expects the central bank to hike rates in May 2011 by about 25 bps and roll back statutory liquidity ratio (SLR) by 50 bps. SLR, or the portion of government securties that banks have to mandatorily hold, currently stands at 24%. He terms 2011 as the year of the mid-cycle blues; the three mid-cycle blues being IIP growth expected to slip to 5.5% in 1Q11 questioning growth, inflation to bottom out in mid-2011 provoking concerns over overheating and lending rates to go up end-2011 , sparking tight money concerns.
Against this backdrop, Sengupta expects the rupee to weaken in 2011, remaining range-bound around 45-46 levels for a greater part of the year, and sees the dollar becoming stronger.
Jaipuria is of the view that the year ahead will see earnings downgrades. “Somewhere, a combination of all these should lead to earnings being downgraded, and probably lead to some derating of the market,” he said. He sees institutional flows moderating in 2011.
“FII flows will be lower this year. We saw institutional investors pump in over $29 billion in 2010, but some of it will reverse this year as money finds other attractive markets,” he said.
Jaipuria says that post-correction, valuations have got close to the long-term average. “Markets are now trading at roughly 15-times one-year forward earnings. To that extent, that is what will probably provide some support over the next one year after we’ve gone through the next three-four months, which will see headwinds.”
On the positive side, he is of the view that India is still an economy that will do an 8%- odd gross domestic product growth. “It’s still an economy, where, in spite of all the downgrades, we will see earnings growth of 15-17 %.”
Atul Singh, head global wealth management and investment, believes that the equity market will offer investors the oppurtunity to get invested in their preferred sector. “Investors should raise cash at short-term rallies,” he said.
Source: Economic Times
