Sensex may hit 29,000 next June

Like Mumbaikars caught unawares by the recent spell of cold wave, investors have been struggling to adapt to the recurring bouts of volatility on the bourses over the last one month. But the weathermen of Dalal Street are expecting sunny skies by the end of this calendar year. Five of the six participants at the ET Round Table see the bellwether BSE Sensex between 20-22,000 then.

The panelists included Narayan Ramachandran, MD & Country Head, Morgan Stanley; Pankaj Vaish, MD & Head equities and fixed income, Lehman Brothers; Ved Prakash Chaturvedi, MD & CEO, Tata Asset Management; Gaurang Shah, MD, Kotak Life; Rashesh Shah, CEO, Edelweiss Capital; and Motilal Oswal, Chairman, Motilal Oswal Securities. The session was moderated by Ramesh Damani, director, Ramesh S Damani Finance.

Only one participant, Ved Prakash Chaturvedi felt that the market was likely to be around 18,000 levels on December 31, 2008. "But that does not mean that mutual fund investors will not make money," he added.

Mr Ramachandran expects a modest performance by the Sensex in the current calendar, but expects the benchmark to touch 29,000 by June next year. Slowing corporate earnings is one factor that most market watchers feel could hold back the market. However, the ET panelists are not too worried about it.

According to Mr Ramachandran and Mr Vaish, interest rates are showing signs of slackening and that could provide a support to corporate earnings over the next couple of years. "These (recent outflow of FII money) are not big things…they are just minor….India has attracted a lot of money and most of it came because of the fact that India is an attractive destination for money," said Mr Ramachandran. "The real thing that will decide is where fundamentals are going. I feel that they (fundamentals) are solid," he added.

Mr Shah felt that issue was not about whether earnings will grow 18% or 12%, but about the rate at which the Indian GDP would grow. "If you expect corporate earnings growth of 11-12%, it means we are looking at a GDP growth of 4.5 to 5 to 6%. But if you expect GDP growth rate to be around 8%, give or take 200 basis points, then a 17-18% corporate earnings growth is not difficult. And I haven't seen anybody—Indian or global—question India's 8% GDP growth rate," Mr Shah said.

While foreign funds have pulling out over the last few months, domestic liquidity has been a strong pillar of support and this trend is expected to continue, feels Mr Chaturvedi. "The kind of money we have seen that has flown in from the domestic investors in the last one year is certainly heartening," said Mr Chaturvedi. "My guess is that if you combine insurance and mutual funds and other (domestic) sources of inflows into the market, close to $2 billion of fresh money is coming into the market every month," he added.

Mr Gaurang Shah sees more investors tapping the stock market through Unit Linked Insurance Plans (ULIPs), mainly because of the handsome returns these products have delivered in the last four years of the Bull Run.

He excepts inflows of roughly $5 billion through various insurance schemes during the current quarter, a significant portion of which will be accounted for by ULIPs.

"I think relative disadvantage of insurance as a instrument vis-à-vis other fixed interest products has come down, which is also because real interest rates have reduced across the world over the last 10 years. So I see money continuing to come in," he said.