Equities to touch calendar year highs in December 2012
The Sensex and Nifty will touch calendar year highs in December 2012. Equity investors across the globe will position for a strong start to 2013 on the back of many issues that were keeping the markets nervous, seeing some form of resolution. Central banks in most countries across the World including the RBI will ease or maintain loose monetary policy. Low interest rates coupled with easy liquidity conditions provide good conditions for an equity market rally.
The issues surrounding global markets are seeing some form of resolution. The US “Fiscal Cliff” that threatened markets briefly in November 2012 post the re-election of Barak Obama as the president of USA, is expected to see some resolution by end December 2012 or early January 2013. US policy makers are in a dialogue to avert the “Fiscal Cliff” as the event will take the US economy into a recession that no one wants.
European Union (EU) officials and the ECB (European Central Bank) are sorting out the Euro Zone sovereign debt issue. Greece has been give easier bailout terms in order for the country to come out of a deep slumps. EU policy makers are now relooking at the terms of bailout of other indebted EU countries in order for the countries that are adoption severe austerity measures to come out of a recession. ECB is ready to buy bonds of indebted Euro Zone countries to provide stability to the markets. Bond yields of indebted Eurozone countries have come off from highs seen during calendar year 2012 on the back of positive signals from EU policy makers and the ECB.
Japan is going through a fresh election in December 2012 and the elected party is expected to adopt loose fiscal policy to take the economy out of recession. Japan saw growth contract in the third quarter of 2012 on the back of a strong Yen and weak export growth. Japan’s central bank is also expected to pump in more money through bond purchases in order to bring the economy out of recession.
China saw some positive data in November with manufacturing data showing growth for the first time in thirteen months. China’s GDP growth for 2012 is expected at 7.5% and the country is expected to grow faster in 2013 on the back of growth policies adopted by the government and the central bank.
India has been one of the best performing markets in calendar year 2012 with the Sensex and Nifty returning close to 25% calendar year to date. Indian markets are looking forward to monetary easing by the RBI in the wake of falling economic growth. The reforms on allowing FDI (Foreign Direct Investments) in retail, aviation, insurance and pension sectors have also improved sentiments on Indian equities. Corporate performance is expected to improve in the third quarter of 2012-13 on the back of many corporates coming out of a long slump. The positive sentiments on Indian equities will help the Sensex and Nifty touch calendar year 2012 highs in December.
The Indian Rupee (INR) weakened against the USD in November 2012 on the back of a rising trade deficit. The INR is likely to stabilize at around Rs 55 to the USD and look to strengthen going forward on improved equity market sentiments.
Table 1. Market Movements