Will stock markets repeat their 2012 performance in 2013?

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Will stock markets repeat their 2012 performance in 2013?
Indian markets are all set to India 2012 with a bang. The Sensex and the Nifty have rallied around 25% and are among the best performing indices globally. A surge of global liquidity and flush with funds, FIIs have single-handedly pushed Indian markets higher.

2013 is going to be a challenging year though. Indices are unlikely to repeat their 2012 feat of whopping returns. First, the Indian markets have turned expensive. At price to earnings multiple of around 15 times forward earnings the markets are no longer cheap. In fact, they are way higher then Asian peers and fund managers believe that valuations are far more attractive in China.

There are several lingering concerns with the Indian economy and with the global economic environment. Fiscal deficit worries in India remain and so does the current account deficit. Also, it's going to be the last budget and the final leg of the UPA II government, which means one expect some populist measures which is likely to put further pressure on the fiscal deficit. This may not go down well with the markets.

Investors have exuded optimism over interest rate cuts and expect a benign interest rate regime. However, they may be disappointed if the RBI fails to cut rates by at least 100 basis points in 2013. It's likely that there may not be a flurry of interest rate cuts, due to high inflation in the economy and this may well lead to disappointment amongst investors.

Corporate earnings are likely to be subdued given the investment climate. Hence, if earnings disappoint the market could see a correction.

Globally, 2013 is all set to begin with the fiscal cliff being unresolved in the US. The fear now is that the US would go into recession should law makers in the US fail to agree on a deal to cut the country's debt. Problems in Greece have not gone away and the can has only been kicked down the street. If the Greece problems re-surface expect the global markets to go into a tailspin, with India following.

Clearly, it's going to be a tricky year for equities. The only saving grace for markets across the globe is the huge liquidity unleashed by central banks across the globe. This could push market momentum further, without any worry over the fundamentals.

It's most unlikely that 2013 would be as good as 2012 for the stock markets. Sell at every rise is the ideal investment strategy.


Read more about: sensex, nifty
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