Domestic investors may return to market in 2013: Geosphere

Arvind Sanger, managing partner, Geosphere Capital Management says the set up is reasonably supportive for the Indian market going into 2013. He expects Indian GDP growth to trough out in December quarter and thereby earnings slowdown will also be arrested. "That should drive market continued rally in 2013. We are also assuming on a global basis that Europe will continue to muddle through with extremely low growth but no disaster in terms of any economic meltdown," he told CNBC-TV18 in an interview.

Sanger feels the newsflow around the fiscal cliff issue will drive the markets in the near-term. He is worried about the potential brinkmanship on the fiscal cliff issue. As long as that doesn't play out badly, he says, the Indian backdrop should remain supportive for a moderate rally into year end. He maintains a positive long bias on better fundamental outlook, but adds that FII flows may drive volatility in the short-term. "We expect reasonable FII flows in 2013," he says.
He says domestic investors may return to Indian market in 2013. Also read: Are domestic investors being set up for a January trap? Below is an edited transcript of the analysis on CNBC-TV18. Q: The year 2012 has turned out to be good for the market offering returns of over-25 percent already. Do you expect 2013 to be an encore?
A: I guess at the beginning of the year very few were optimistic about where 2012 would end up. But I would say that for 2013, the factors for India are reasonably supportive- the slowdown in GDP and earnings growth troughing hopefully either in the September or the December quarter of 2012. As sentiment improves in corporate India and hopefully, continued initiative by the government drive improvement in corporate confidence and spending which should result in a recovery in earnings and spur the market rally in 2013. So that is the backdrop that we see.
We are also assuming on a global basis, that Europe will continue to muddle through with extremely low growth but with no threat of a economic meltdown. We also forecast that the US will resolve the fiscal cliff issue and the US economy will grow slowly because of some of the fiscal contraction, but gain with the Fed standing on the sidelines with plenty of liquidity which it is likely to inject when the Operation Twist ends. All of that should provide a backdrop which could be supportive for Indian equities.
Q: How do you see the next few weeks of December panning out globally?
A: I think in the last few weeks of December, the US fiscal cliff issue will be on the top of the mind across the globe. So, there will be some volatility and that could drive either near-term weakness or continued rally into the year-end depending on how it plays out.
I must admit that I am a little bit nervous about the very near-term, given how far markets have come about trading volatility because of the potential brinkmanship by both parties on the fiscal cliff and that could drive some kind of risk-off on a global basis.
But I think India-specific newsflow should remain relatively benign and slightly supportive, but there are other concerns like the RBI policy later in the month. But I think on a global macro-economic basis, the US fiscal cliff will be the biggest factor and as long as that does not play out badly, I think the Indian backdrop should remain supportive for a moderate rally into the year-end.