D-St Sees No Threat to UPA, Feels FIIs will Keep the Faith

A majority of broking firms and fund managers in an ET survey feel there will be no snap poll and that markets will continue to surge ahead in 2013

Dalal Street thrives on optimism. Despite a choppy marketandpoliticaluncertainty,topbrokersandfundmanagers believe that foreign portfolio managers will remain unperturbed and the market will find a way to tide over the rough times. The UPA government will last its full term in office and push through reforms in pension and insurance whileforeigninvestors—eggedonbycheapmoneybackhome — will continue purchasing domestic shares and push stocks to a new high in 2013, an ET poll of 20 fund managers and brokers showed. 

Poll participants like Axis Direct, HDFC Securities, MacquarieCapital,MotilalOswal,KotakSecurities,LICNomura MutualFundandUTIAssetManagementCompany–ruleout theprobabilityof snappollsasthemajorpoliticalformations will find it difficult to garner numbers enabling them to form agovernment."Thepossibilityof earlyelectionsisunlikelyas both Congress and BJP are not ready," said Nobutaka Kitajima, CIO-Equity, LIC Nomura MF. "Elections will be later than the fourth quarter of CY2013, but very unlikely to be sooner." A majority also expected economic reforms to continue apace despite the SP and BSP being opposed to insurance and pension reforms. "The BJP is not averse to supporting the pending insurance and pension Bills, and I am hopeful Parliament can pass the Constitution Amendment Bill that will pave the way for the rollout of a unified Goods and Services Tax or GST," said a participant who requested anonymity as he was not authorised to speak to the media. 
Whilethegovernmentwants49%foreigndirect investment limit for pension and insurance,theBJPispitchingfora26%limit.However, participants said both Bills were unlikely to be taken up during the second leg of the Budget session, which commences after a month. A majority of those polled also expectFIIflowstocontinueapacewiththeUS Fed keeping interest rates low and buying $85 billion in bonds a month to support the country's fragile economic recovery. Japan's stimulus package to reflate its economy will also ensure the cheap global liquidity tap remains open, they added. These flows along with improved GDP growth will play a big part in pushing stock markets to new highs by the end of this year. The poll pegs the average Sensex target for the year-end at a record 21,744, 16% above Thursday's closing. The record so far for the Sensex stands at 21,206.77, which it hit in January 2008. Though GDP growth in FY14 is largely expected to be higher than the forecast 5.5% for the current fiscal year, most of those polled do not expect growth to touch the 6.7% forecast in the Economic Survey FY14. Fifty percent polled expect GDP growth for FY14 to be between 5.5%and6%whileonly35%expectittobe6-6.5%,orcloserto the finance ministry's target. 
"The government's FY14 growth target looks achievable as it has at its disposal an additional . 97,000 crore of unspent plan expense from the second-half FY13," said Nilesh Shah, director, Axis Direct. However, while all this will bode well for FIIs, theoutlookfortheretailinvestorstilllooksgrimbecauseof the poorperformanceof smallandmidcapshares.Seventypercent of those polled don't expect retail investors who fled following the recent midcap carnage to return to the markets this year. "Retailinvestorshurtbythecrashinsmall-andmid-capstocks areunlikelytoreturntothemarketsthisyearastheyhaveseen thevalueof theirportfoliosdeclineby25-30%overthepastcoupleof years,"saidDineshThakkar,CMD,AngelBroking.