Market Outlook 2010

Indian Stock Markets have started the year 2010 on a positive note. After a stupendous rise of 80% over the past year , what’s in store for Indian Markets this year? Moving into 2010 , Sensex at 17,000 levels, most positives based on FY10E earnings are firmly in the price. The risk-reward is not in favor buying heavily into equities, atleast in the index stocks.

Having said that, in the near term, markets would look forward to the upcoming results season for clues into future corporate profit growth. Indian economy’s fundamentals should strengthen further as we move into CY10 and momentum in GDP growth should likely gain steam. This should keep the foreign investors interested in the India story.

Currently India trades at trailing P/E of 19 times of current year earnings. Historically markets have gone upto 20/21 times of current year’s earnings, which can propel the Sensex to higher levels of about 18500/19000. And only during bubble times, markets have traded above 30 P/E. which is unlikely.

The key risks for our markets are higher interest rates triggered by rise in inflation, global uncertainties on monetary and fiscal tightening. Any sharp interest rate hike in U.S and in India, could trigger the anticipated correction.

Hence the rally is likely to continue, optimism needs to be backed by higher earnings visibility for FY11 and also earnings upgrades. We can expect market gains to be moderate after a strong 2009.