The economy is up —but for worries on the price front and interest rates that may rise as a consequence of inflation. After a strong bounceback, stocks are at the crossroads as December saw an ebb. So, what will 2011 bring for investors?
Experts hold out the usual wisdom: invest steadily through mutual funds and make use of downturns. And watch your step.
If the benchmark Sensex generated a 17.4 per cent return in 2010 on the back strong inflows from foreign institutional investors (FIIs) that totalled a record Rs 133,266 crore for a calendar year, market watchers believe they could come again in the new year because India’s potential to outperform other economies is strong.
“At an expected rate of growth of close to 10 percent in GDP next year, the earnings growth of corporate sector could be easily around 20% . Also, FII inflows will continue at the same rate unless there is a significant increase in interest rates in the US and other developed economies which is unlikely,” said CJ George, managing director at Geojit BNP Paribas Financial Services.
ICICI Securities expects the Sensex to cross 23,000 in 2011, from the year-end closing of 20,509 at the end of 2010.
“We expect strong earnings growth… with a Sensex target of 23,165 by December 2011,” said Madhabi Puri-Buch, CEO, ICICI Securities.
But predictions can go wrong, as they have in the past. Investors should always keep the long term in mind while putting in their money. Patterns are also critical in watching stocks.
“There may be two trends in the year. In the first half earnings will be led by companies, which are leveraged on commodities and in the second half we are likely to see the consumption-based sectors to reclaim earnings momentum,” said Sanjay Sinha, CEO, L&T Mutual Fund.
While large caps are always considered safe to invest, experts say mid-cap stocks can throw up better opportunities in the year as most of them fell recently on the back of news related to a few companies.
“I would suggest the investor to have a healthy mix of large and mid cap funds,” Sinha said.
“We prefer large caps to mid caps, given their enhanced ability to endure negative undercurrents if any,” said Buch.
Buch’s team is betting on information technology firms gaining from global developments, pharmaceutical companies gaining from domestic and US-led growth (besides merger/acquisition opportunities), banks aided by strong bases to do well in addition to capital goods firms in sound growth.
While mutual funds focused on these sectors could be in focus, balanced funds that have generated strong returns in 2010 are also among keenly watched options. They can gain from a rising interest rate regime when interest-bearing bonds become attractive.
Experts cautioning against volatility advise systematic investment plans (SIPs) as the way to take exposure to mutual funds.
“SIP works best as you don’t have to time the market and all investment made in the downturn deliver handsome returns once the market bounces back,” said Amar Pandit, a Mumbai-based financial planner.