5 things Indian investor needs to watch carefully in 2012

Moneycontrol Bureau

Supporters of the India growth story would like to treat the year 2011 as a bad dream. In a departure from big gains in the past two years, investors saw around Rs 20 lakh crore of their wealth eroded as Indian equities tanked in 2011 because of inflation, high interest rates and the uncertain global growth environment accentuated by the euro zone debt crisis.

The participation of local and foreign institutions in Indian equity markets has been marginal. Fiscal deficit is likely to be around 5.5% against the target of 4.7%. In short, things, which were looking positive at the beginning of the year, seem to have lost steam and the situation looks grim.

While it is very difficult to make a guess given the uncertainty in many quarters, the equity markets seems to have substantially priced in the worst. It is trading at a PE of 12 times financial year 2013 estimates. But one is for certain and that is it will get worse before it gets any better.

Most market watchers would agree that the eurozone will hold the key to any semblance of a bull market in 2012. There was across-the-board change of the guard in 2011, as struggling European countries [1] brought in the technocrats, or voted out governments which had failed to solve their economic crises. In 2012, there could be an even bigger shift, with several key countries facing possible changes at the top.

There is also a chance that Italy will have a new election, which could kick out the current technocratic government, if President Giorgio Napolitano fails to reverse former Prime Minister Silvio Berlusconi