A major part of 2012 may not have been very exciting for the Indian stock market. Yet, the second half of the year brought hope of a promising 2013. With 2012 behind us, the supposed ‘end of the world’ predictions would hopefully also have been put to rest. Pessimists though, always manage to find a bagful of excuses to remain fearful and depressed. Bears in the stock market will cite the decelerating GDP growth and twin deficits to justify their case for a subdued performance in 2013. Although some merit in this argument, the positives will likely outweigh negatives in the coming 12 months.
Similarly, doomsday predictors may turn to the so called ominous number 13 in the New Year. However, you may be surprised to know that ‘13’ is considered lucky by many. Several successful sportspersons world over have gainfully donned this number on their T-shirts, including the Olympic Hockey Gold winner for India, Balbir Singh. In numerology, ‘13’ has been termed lucky in many ways. Pronounced as tera, the number signifies a devotional pronouncement to God in Northern India.
In reality, it’s a case of seeing the proverbial glass ‘half full’ or ‘half empty’. Apollo 13, the failed US space program, can be considered blessed or cursed depending on how one looks at it. On one hand, the shuttle crashed and on the other, the entire crew returned home safe and sound. If the good and bad come intertwined with each other, it’s always better to live with the lesser evil and the larger gain. Given this frame of mind, one will invariably reckon luck as good alone.
Personally, I see good reason to be hopeful for equities in 2013. The Indian stock market received a fresh lease of life when the government swung into positive action following fear of an imminent country downgrade and another bout of quantitative easing announced by Central bankers around the world. We firmly believe the government policy measures will continue as downgrade fears have not been completely dispelled. Among other things, we expect it to remain focused on countering fiscal deficit through measures like direct subsidy via ‘Aadhaar’, disinvestment and introduction of Goods & Services Tax and Direct Tax Code.
Global growth trajectory is expected to be higher in 2013 compared to 2012. Coupled with expectations of benign inflation and the Fed’s intention of keeping interest rates low till 2014-15, the environment looks largely conducive for continued money flow in Asian equities. The Rupee carry trade also favours FII flows into India. The FDI green signal in certain sectors may also help bring the much needed long term capital. We have reason to believe that the worst is over for INR; not to suggest that the Rupee is on a super appreciation spree but a major slide from here is surely ruled out.
A key market trigger is the peak out of the interest rate cycle. After two CRR cuts, we now expect a Repo rate cut of 25 basis points in the January 2013 policy review meet of RBI. There is a case for a 75-100bps rate cut in 2013.
Some pundits reckon that the forthcoming elections may beget uncertainty. On the contrary, we are confident the elections will reset the system instead, either through a fresh mandate to Congress or by virtue of a change in mandate. The result can only be unlucky in the event of a third front assuming power.
Valuations are reasonably placed at 14.5x FY14E for the Nifty and the earnings downgrade momentum is waning. Whether the current market involves a ‘risk on’ trade or signals the start of a new bull run, the current situation presents a tactical opportunity for equities, not to be missed. Let’s greet the ‘13’ in 2013 with renewed hope and measured confidence. Incidentally, the number is considered lucky in China and Italy; their economies could do with some luck. Coincidently, the number is considered lucky by our honourable President Pranab Mukherjee too. Let us hope the Indian economy turns better during his term.
Wishing you and your loved ones a Happy and Prosperous New Year!