What is your equity market outlook for 2010?
While 2009 has given the Sensex the highest annual returns in last 18 years, returns in 2010 are expected to remain moderately positive. Factors which drove equity market in 2009 - liquidity, low interest rates, economic recovery - continue to remain intact and are expected to remain so for a major part of FY10. GDP for FY11 is expected to grow at 8% as against 6.5-7% expected during FY10. Inflation for the full year is expected at around 5-6%.
Corporate earnings witnessed upward movement from 18-25% range to around 20-30% towards the year-end. With ~25% earnings growth possible during FY11, the Indian markets do not look expensive for long-term investors.
What are the key themes to bet on for the coming year?
Investors should shift their focus from consumption related sectors to capex and Infrastructure sectors. The other theme to bet on is the big valuation disparity among large and mid caps. There will be opportunities for alpha creation, however stock selection will be the key.
Any key concerns for markets?
Key global risks includes premature withdrawal of economic stimulus, hardening of interest rates in the US on the back of faster economic recovery, US dollar strengthening and reversal of dollar carry trade. Key domestic risk includes poor monsoon during FY11.
To what extent do you see bond yields hardening by the end of year?
In spite of diminishing supply of G-Sec (as RBI has completed 70% of its second half scheduled G-sec borrowings), yields are expected to be under pressure in near future on back of expectations of reversal in monetary policy actions in/prior to the RBI quarterly policy meeting, better than expected IIP numbers, higher monthly inflation figure, expectations of huge gross borrowing figures for FY11 (on account of huge redemptions lined up). G-Sec market will take further cues from credit pickup, deposit growth data, announcement related to government borrowing (if any) and actions from global central banks. Short term yields will be under pressure on the expectations of rate action by RBI. Corporate bond spreads may not shrink further over the medium term as credit growth picks up and higher SLR requirement generates higher demand for G-Secs.
What would be your inflation target for end-2010?
Inflation for the month of December 2009 averaged around 7% as against 4.8% in November 2009. Food inflation almost touched 20% during the month on the back of soaring agricultural commodity prices. Food prices are expected to moderate due to better than expected Rabi crop turnover, government's policy actions and the end of seasonal effect. However, inflation will likely peak at around 9% during February-March 2010 due to surge in demand for non-food articles, before the statistical base effect settles it down to over 6% in September 2010.