Indian Equity Market - 2013

 Indian Equity Market - 2013 At the beginning of 2012 our basic view was the Indian Stock Market was trading at a cheap valuation of 13 and a rally was evident at that level of valuation. Indian Equity Market are now trading close to Sensex 19,500 levels and is up by 27% in 2012.
GLOBAL OUTLOOK  for 2013       :-  ECONOMY   . .   Policy Makers ensure no collective damage, though problem will persist
European debt crisis should not hamper India's growth dramatically.  There are doubted of Italy or Greece getting into recession but not Spain. If ever such a condition emerges maximum what would happen is our trade with the defaulting country would suffer. It will not have any collateral damage like the one we had during Lehman crisis.
 Also in the absence of any strong political leader across World, nothing very good or nothing very bad is expected as only a strong political leader is capable of taking risks which causes Economical changes which are big enough to have an impact on the economy. Moreover,  Policy Makers across world will ensure that there are no collective damage, though problem will persist.
Global GDP growth to rise to long term average of 3.4%
We believe that the global GDP growth which is at 2.2% in 2012 should rise upto Long term average of 3.4% in coming years and should not drop below the 2.2% mark any further
Recently , PMI Manufacturing new orders have picked up in Brazil, China and India suggesting that global growth would be maintained and not taper off
Global commodity Bull run is assumed to be over. Growth happens if inflation is reduced or is low. So if we assume GDP growth in coming years, commodity prices should fall from here on resulting in reduced Inflation
Commodity prices of different commodities diverge at the peak or bottom of a rally. Lately in 2012, Crude Prices have not changed while coal prices have fallen. Both are sources of energy and such divergence in their prices can be assumed to happen only at the peak or bottom of a rally but since previous trend has been bull so we assume that the next trend should not be a bull one.
DOMESTIC OUTLOOK       :-    ECONOMY                          ......   GDP GROWTH RATE AT 10 YEAR LOW
GDP growth comprises of Consumption growth and the Investment growth. The consumption boom in the past few years has been the key to resist the fall In GDP growth till date. Though from now on expect the consumption growth to taper off. The Investment growth has been poor last year and even this year. In FY 2013  only 4000bn worth project are announced till date while cancellations has been for 8000bn. So Investment remains a concern in growth.

We believe that asince policy makers are seing trade deficit at 10% of GDP for the first time, hence they also need to learn as to how to control such an adverse situation in the economy. Trade Deficit is alarmingly high at present levels and since exports are not improving ( for example: IT export rate is reducing constantly) , this situation is likely to persist for in year 2013 as well.

MARKET OUTLOOK                                                 MARKET OUTLOOK

We are still on the lower side of average valuations in all parameters be it P/e, P/b , EV/ Ebidta etc
Even during lows of CY 2011 market did not fall beyond p/e of 13 times FY 2012. Similarly if we assume FY 2014 EPS of 1370, Market should not fall beyond median P/e of 13, i.e Index should not fall below 17800 levels. Even if the index falls near to these levels it will be as cheap as 2011 p/e.
At present levels of 19500, market is not richly valued though since 2011CY market has moved from 15000 to 19500.
Mutual fund inflow does not generally come unless the Sensex P/E crosses 18. This means atleast upside P/e in better days of stock market should atleast be 18. This implies for CY 13 ( or say FY14), market upside projection is nearly 25000.

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