Annual Forecast Survey FY11-12

IAIP Annual Forecast Survey Results

March 2011

IAIP had conducted Annual Forecast Survey amongst the investment professional in the month of March 2011. The questionnaire covered one year outlook for India’s GDP growth, inflation, 10 year government securities yield, one year returns expectations across asset class viz. equities, fixed income, real estate, gold and commodities. The response to the survey was impressive with more than 500 enthusiastic participants.

Unlike in the previous survey, this time we tried to guess the market mood for various asset classes in a slightly different manner. We asked them to choose the best asset class in terms of returns as well as rank them in terms of most attractive or least attractive in terms of relative value. While majority of responses were in favor of equities in terms of long term returns (48.6%), participants were cautious towards equities (40.6% found it least attractive) and preferred to hold on to cash (37.6%).

In terms of real GDP growth expectations around 39% estimate the figure to be between 7% & 8% and 49% between 8% & 9%. Combined together the figures are similar to last year. This is despite higher inflation, sovereign debt problems in Europe, and lower corporate profitability growth. Probably this is the reason why 38% are expecting Sensex between 19000 and 21000 and another 38% expecting it above 21000. Majority (68%) expects Sensex earnings to grow between 10-20% and 22% expect flat earnings. Like last year there are multiple factors driving Indian equities government policy actions & economic reforms being the primary (31.3%), global commodity price being the second (22.9%) and corporate profit (21%) being the third.

The yields on 10 year government bond is likely to range between 7% and 8% as per 46% of the participants and 8% to 9% by another 32% of the participants. Strength in Indian economy and weakness in the West means firmer Rupee and continued international investment flow into Gold and emerging markets like India. The view on currency has been very concentrated with 56% expecting it in the range of Rs44-46 to the greenback. The range predicted for gold is very flat right above $1200 for every interval of $100 till $1500 per ounce. Roughly each bucket received 20% representation and another 23.4% voted for prices above $1500.

Nearly 48.1% of the participants are expecting inflation (WPI) to remain high in the range of 7% and 9%. The major cause has been recent rise in crude oil prices. Both of these are the major concerns for investors – inflation sited by 31%, spike in oil prices by 28% and domestic politics & corruption issues by another 17%.  Around 27.8% expect crude oil to hover between $90-$100 per barrel, 21% expect it to quote between $100-110 by the end of this fiscal and further 20.9% expect even higher levels above $110 per barrel. The key issues for government to address were controlling inflation (20% of votes), acceleration of investment in infrastructure (25%) and tackling corruption issues (15%).

The profile of the participants: (1) members not affiliated with CFA Institute or IAIP were 60.3% and members of both CFAI and IAIP formed 22.7% (2) 25%, 21% and 13% of the respondent came from brokerages, mutual fund companies, and private wealth management/distributors respectively.