Market Outlook 2011

The Sensex didn't perform as well in 2010 as it did in 2009. In 2009 the Sensex returns was 77% and in 2010 it was just about 18%. But some of the individual sectors performed better than the benchmark index. The top sectoral perpformances came from the consumer durables with a spectacular 64% return, followed by the auto sector and the healthcare sector which posted an impressive 33% returns each.The biggest loser was the realty sector,down about 25% and the power sector fell by 7%.

So, going forward, what is the outlook for equity markets and other investing opportunities in 2011? One of the most important things to look at for 2011 is where to invest. Should one choose Stocks, Bank FDs or Commodities like precious metals?

Equities: There is no doubt markets are fairly valued on FY11 Sensex EPS numbers and Investors entering at current levels have not big upside left. But for a longer time horizon , there is for scope for making gains, based on FY12 numbers. The Sensex EPS estimates are between 1250-1290, based on various brokerage estimates. Based on 5 year average P/E for Indian markets, the Sensex has targets of about 21250-21900. Hence,investors can enter only on corrections to buy fundamentally sound large and mid cap stocks and the sectors to watch out are Banking, Capital goods,Midcap IT and Metals. So one has to be very stock specific to make better returns than the index. Keep watching the Stock Watch section for more stock specific updates.

Fixed Income: Fixed Income returns are to become more robust. The last few years' return in fixed income assets has barely been able to match inflation. But this is set to change, since interest rates are on the rise and Bank FD rates ( 9 to 9.5% p.a) reflecting the same. Hence one can expect higher returns in Bank FDs than the past couple of years.

Gold and Silver: While the stocks have gone up reasonably, the precious metals - gold and silver - have massively outperformed them.However, will silver and gold continue to outperform stocks like it has done in the previous year? It is most likely will continue to do well but Gold unlike other investments acts as an insurance policy against inflation.Hence 10-15% is the maximum exposure one could have exposure to Gold and Silver and not go overboard on this.

Hence, investors can take cue from the above mentioned points and depending upon their risk profile thye should take their decisions.

Be a wise investor !