IAIP – Fourth Annual Forecast Event FY13

IAIP’s Fourth Annual Forecast Event 2012-13

April 2, 2012

Continuing its past trend IAIP organized its Fourth Annual Forecast Event at the iconic venue of Rotunda, at BSE. The event went on very well with excellent set of panelist and anchor Nikunj Dalmia from ET Now, a leading business news channel, which broadcasted part of the program live. This event was well attended by both IAIP members and non-members. BSE, ET Now and Outlook Business were the sponsors for this program.

In his keynote address Ashish Kumar Chauhan, Deputy Managing Director of the BSE, talked about pickup in volumes on the exchange and innovation being brought by it. These include introduction of emerging market index futures viz. Brazil, China, Russia, and South Africa in the derivatives segment on the BSE and launch of SME Exchange allowing small and medium sized companies to raise capital.

After a brief address by Amit Khurana, CFA, Director IAIP, Anil Ghelani, CFA, Chair Programming, CE and Networking, IAIP, introduced each of the panelists and invited them to take their seats on the podium. Just before the question and answer session, Jayesh Gandhi, CFA, Director, IAIP ran through the findings of the recently concluded Annual Forecast Survey for FY13. Vidhu Shekhar, CFA, Vice President, IAIP concluded by giving vote of thanks

Panel moderator Nikunj, in his customary style, poised number of questions, some really tough and pointed ones, to which the experts responded with equal calm and confidence. Questions ranged from the most attractive asset class which could chip in best returns vis-à-vis fixed deposits, to the most attractive sectors & industries for investment, to global & local economic indicators, to major concerns and risks facing the investors. The following are the excerpts of the views expressed by the panelists.


Prabhat Awasthi, Managing Director & Head of Equities, Nomura…

Both the US doing well and China moderating its growth rate and rebalancing have positive implications for India. The investment to GDP ratio which were above 50% in China are likely to come down; thereby reducing the demand for commodities. This will ease pressure on commodity price mainly crude oil which could work out in favor of India. US doing well again will be beneficial for Indian exporters. Some long term investors are positive on this interplay over the coming 4 to 5 years. Prabhat believes that interest rates are at a peak and it is question of when they start coming down. Hence he favors financials. Looking at lower gross capital formation figures he has little comfort with industrials and capital goods. LTRO was a response to trouble in the Euro zone. However, the fundamental problems still need to be addressed.

Rajeev Anand, Managing Director and CEO, Axis Asset Management…

Global economies continue to remain fragile and hence liquidity and central bank actions will continue to be dominant factors ahead of political ones (many countries are going for elections) going forward. With most of the currencies being debased Gold should be a part of the portfolio. It could also act as insurance against inflation. Rajeev expects repo rates to come down by 50-75bps in the current year. The supply pressure for the long term bonds will continue and hence he remains cautious at the long end of the curve for the coming 6-months. The yield on short term papers for-example 1 year CD rates which are currently ruling high above 10.5% are likely to come down and one should position the portfolio here to capture gains.

Naganath Sundaresan, President & CIO, DSP Blackrock Investment Managers…

When asked whether Nifty has a good support at 5000, Naganath agrees to the same based on price action; though he thinks it depends on how factors unfold. These include the trajectory of inflation globally, which may continue its upward trend, following monetary easing on the one hand and the extent to which the bank credit shrink (as they prepare to meet increased capitalization & provisioning norms) and constrain supplies on the other. Hence investor will have to weigh in inflation while deciding asset allocation. As long as Gold is viewed as an alternate currency it will do well. The demand for gold within the country continues to remain good going by the latest numbers. On pressed to choose amongst the best option for investment from 6 months horizon Naganath prefers short term debt. But from 3 to 5 year perspective he would choose diversified equity funds.

Dr. Shubhada Rao, Chief Economist, Yes Bank…

Headline inflation has continued to rule above RBI’s comfort zone and current account deficit too has ballooned. This has resulted into delay in monetary easing by RBI to a certain extent. Shubhada expects inflation to be 120bps lower than last fiscal, GDP growth to increase to 7.4% in FY13 and repo rate cut by 75bps. Gross government borrowings program of Rs5.75lac crore in the current fiscal is a major concern. Liquidity deficit in second half will be Rs2.5lac crore. Hence both CRR cut of 50bps and OMO (Open Market Operations) of Rs1.25lac crore will be required. Again starting 2015 onwards the repayments of government borrowings are going to be large – to the tune of Rs1.5lac crore to Rs2.0lac crore per annum. Unless there is substantial cut in subsidies or increased tax receipts managing liquidity will be challenging in the long run.

Sunil Singhania, Head – Equity Markets, Reliance Capital Asset Management…

Markets are forward looking. Most of the factors like higher inflation, which are a concern now, could turn favorable 6 months down the line. While there are challenges, Sunil remains optimistic about the future and the only one to look at the beaten down industrials & capital goods amongst the panelist at this juncture. This sector has higher operating leverage, so whenever their order book and prospects improve, there can be huge upside. Other sectors to look for are technology, which could benefit from Rupee depreciation, and pharmaceuticals where companies are likely to provide higher growth than FMCG and are yet available at lower P/E multiples on relative basis. In India investors usually look for growth though higher multiples could affect returns. One has to balance between growth, quality and valuations. Good companies do not necessarily form good stocks. In response to a question as to whether you should follow FIIs, Sunil says you need not follow anybody to make money as the history has proven that more money flows into the market near the peak like in 2007-08 and more is withdrawn at the bottom like in 2008-09.

Nikunj concluded the panel discussion with the following quote “Good News and Good Buys don’t come together”.

To view the video clipping of this Annual Forecast Event, kindly follow link http://economictimes.indiatimes.com/et-now/daily/4th-iaip-annual-forecast-event-fy-2013/videoshow/12506771.cms

IAIP – Fourth Annual Forecast Survey – FY13

Annual Forecast Surveys are important traditions at the CFA Institute world wide, and IAIP has been consistently conducting this exercise for the last four years in the month of March, just before the beginning of the new financial year. The survey tries to gauge the outlook of finance and investment professionals across the asset classes for the coming financial year. Like in the past this year too the response was overwhelming with nearly 650 people filling in the online survey. The participants came from various segments of financial services industry viz. asset management companies, brokerages, insurance companies, banks, private wealth managers, financial advisors, distributors, stock & commodity exchanges, regulators and others.

The key findings are as follows:

  • Nearly 42% of participants have selected equities as the best asset class to be invested in during FY13 whereas 20% prefer investment in fixed income.
  • Around 41% of them expect Sensex to register returns between 6-14% as indicated by target range of 18,500-20,000.
  • The yield on 10 year government paper is expected to fall to 7-8% according to 52.9% of the participants.
  • As far as real GDP growth is concerned opinions are equally strong for the intervals spanning 7%-8% and 6%-7% with 44% and 39% votes respectively.
  • So is the case with inflation with 46% and 42% choosing the range from 7%-9% and 5%-7% respectively.
  • The curve is flat for crude prices and gold as is shown in the table below.
  • Spike in oil prices and slow pace of reform remain key concern for the investors
  • While government policy actions could be one of the key drivers of equities.
S. No. Question / Economic Variable Option or Range with Maximum  Response Second best Option or range & response
1 Best asset class to be invested in for FY13 Equities Debt
NoR = 42.3% NoR = 20.0%
2 India’s real GDP growth in FY13 Between 7% and 8% Between 6% and 7%
NoR = 44.3%  NoR = 39.3%
3 India’s average Inflation (WPI) for FY13 Between 7% and 9% Between 5% and 7%
NoR = 45.9% NoR = 42.0%
4 Yield on 10 year GOI Securities at end FY13 Between 7% and 8% Between 6% and 7%
NoR = 52.9% NoR = 20.2%
5 Crude Oil (Brent) Price at end FY13 (USD / bbl) Between 110 & 120 Between 100 & 110
NoR = 32.0% NoR = 25.1%
6 Gold Price at end FY13 (USD/ounce) Betw. 1600 & 1800 Betw. 1400 & 1600
NoR = 36.1%  NoR = 31.1%
7 INR/USD rate at end FY13 Between 48 and 50 Between 50 and 52
NoR = 40.8% NoR = 25.1%
8 BSE Sensex Target at end FY13 Between 18,500 & 20,000 Between 17,000 & 18,500
NoR = 40.7% NoR = 25.1%
9 Biggest concerns for India’s outlook Spike in Oil Prices Slow pace of reforms
NoR = 26.5% NoR = 25.2%
10 Key Economic agenda for the Indian Government Controlling Fiscal Deficit Accelerate investment in the economy
NoR = 31.3% NoR = 20.4%
11 Important Drivers for Indian Equities over 12 months Government Policy Actions RBI Monetary Policies
NoR = 49.6% NoR = 11.8%
NoR = Number of responses in percentage terms.

For the complete details of the response to IAIP’s Forth Annual Forecast Survey FY13 kindly visit www.cfasociety.org/india.NoR = Number of Responses in Percentage terms.

Contributions from:
Chetan Shah, CFA, Jayesh Gandhi, CFA, Jignesh Kamani, CFA, Rohan Ghalla, CFA and Vipul Badjatya, CFA; all IAIP Volunteers.

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