It’s consolidation time for stock markets, claim experts. And they could not be too far off the mark, as the market seems headed for a moderate spell in 2007. The bellwether BSE Sensex may give a return of 10-20 per cent in the next calendar year; a far cry from the return of 46 per cent during 2006 to date.
Analysts are cautiously optimistic, and say it will be difficult for the companies to sustain the high growth phase witnessed during the last couple of years. However, the good news is that midcaps, which have not participated fully in the present rally since June 2006, are expected to see a revival in their fortunes.
When contacted by the Hindustan Times, market experts put the future market upside of the Sensex at 10-30 per cent, compared with at least 35 per cent of average returns it gave over the last four years, including 2006.
Lalit Thakkar, Director-Research of Angel Broking, said that the Sensex would move in the range of 12,600-15,000 points (11.34 per cent upside from last Friday’s close at 13,471.74). But, A Balasubramanian of Birla Sun Life Mutual was more emphatic in saying that 2007 would be a year of consolidation for the Sensex, in view of its sustained upward spiral since April 2003.
Explaining the expected consolidation phase, Deven Choksey, Managing Director KR Choksey Shares & Securities said: “Several large and medium capitalised companies are in the process of setting up new capacities. That will affect their performance in the short-run, though it will aid growth later." Choksey was also of the view that the first half of the next fiscal would be a better time for the Sensex than the second.
From this it seems clear that much hinges upon corporate performance. Corporate earnings have been growing at a pace of 20-23 per cent. If the same pace continues, the Sensex will follow suit. “If corporates fail to meet market expectations, the market may fall by around 20-25 per cent,” said Raamdeo Agrawal, Managing Director of Motilal Oswal Securities. “Stocks which did not see an upside during the current year will look up during 2007,” he added.
Emphasising that midcap stocks would revive in 2007, Amitabh Chakrabarthy, Head-Research of Brics Securities said: “The Sensex could trade at 14,500 points by December 2007, a return of 10 per cent at best. But we believe that 2007 will be a year of midcaps where substantial returns can be made as the margin of safety in many such stocks is high.”
Harendra Kumar, Head-Research of ICICIdirect.com said: “Going by our estimates, we have a target of 16,700 points in the next 12 months. This will have a return potential of around 25-30 per cent.”
However, nobody is pessimistic about the economy, one of the critical factors for forecasting market performance. Almost all the research heads and senior market analysts are of the view that the economy would sustain its over 8 per cent growth in 2007, backed by high investments in infrastructure development and growing consumer demand.
They hope that the problems like spiralling crude prices and global interest rate hikes will be passé.