From being the worst performing market globally in 2011, Indian equities turned the corner registering a 25 percent return year to date. What's more surprising, is that the Indian markets climbed the wall of worry both the global and the domestic, to rank the 3rd best-performing market globally and the best performing market in Asia in 2012.
With high expectations what's in store for Indian equities in 2013:
The view on Indian equities as an asset class was somber and didn’t hold much promise for 2012 given that India was the worst performing global equity market in 2011. But markets have a mind of their own and 12 months later, India has emerged as the dark horse that foreign investors are keen to bet on in 2013 as well.
"Look at the GDP, earnings growth; look at analysts' earnings downgrade vs upgrades. Most of those were negative. Markets on the other hand have given a decent return partly under expectation that we are bottoming out on most of these fundamentals and things will start looking better. So that is what we will have in 2013, where actually the fundamentals look better," said Jyotivardhan Jaipuria, head - research, Bofa Merrill Lynch.
Jeff Chowdhry, head - em equities, F&C investments, says,"In the beginning of 2012 the valuations were much cheaper than they are at this point in time. So clearly from a valuation perspective the market is not that cheap. The economic situation is slightly better. Inflation is more under control, and economic growth is slightly stronger. I wouldn’t be surprised to see another 15-20 percent return from India in 2013."
Of the last 11 months, the last 4 specifically saw the sharp spike driven by global and domestic factors. Till September, the rally was mainly on account of benign liquidity but post Chidambarama’s return to the finance ministry in August, the markets were bouyed by the government's reform drive.
Reflected in the performance of the Bank Nifty up 54.3 percent and BSE FMCG up 47 percent while sectors like metals, infra and it stocks under performed. FII"s pumped in over USD 23 billion.
The road ahead
All eyes are now on liquidity, interest rates, earnings, and a continuation of the reform drive in 2013. Politics could be a wild card with the possibility of an early election not being ruled out.
In the near term, all eyes will be on budget 2013, the last full budget ahead of the next general elections. With a high fiscal deficit and Chidamabrama's penchant for new taxes, investors are cautious on how far the finance minister will push to keep voters happy.