Party on the bourses to continue this year

The year 2013 could set a new beginning for the Indian markets on renewed expectations, ample liquidity and government's urgency to revive the economy. With general elections just a year away, experts believe 2013 will give good returns.

Low valuations and improving fundamentals are expected to result in a series of earnings upgrades. In November 2012, consensus earnings estimates for the Sensex were pegged at Rs 1,413, which over the period has been upgraded to Rs 1,445.

This might go up further as visibility improves. The Sensex presently trades at 13.5 times its one-year forward estimates, which is near its 10-year historical average.

"The government will do everything to revive growth, else its tax collection will be hit. So, even if P/E remains the same, just on the basis of the earnings growth of about 15 per cent, the Sensex, which is at the lower end, despite a 25 per cent growth in the last twelve months, could go up to 22,000-23,000. Once the Sensex hits 21,000, everybody will turn positive and sentiments will change. We will then have new investors and a new show to begin with," says Raamdeo Agrawal, joint managing director of Motilal Oswal Securities.

A possible rate cut, revival in the investment cycle, stable rupee and flurry of reforms could help Indian companies in a significant manner. Fund raising is easing, as many companies have recently raised money through the qualified institutional placement (QIP) route.

The higher number of buybacks in 2012, which typically happen when sentiments are low and promoter confidence high, is a good indicator of better business outlook.

On the flip side, global factors, a prolonged slowdown and  the Reserve Bank of India's interest rate policy on the back of sticky inflation remain causes of concern. "Globally, we expect the scenario in the US and Europe to remain uncertain but at the same time, we do not expect any catastrophes from those regions.

To that extent, we do not expect any major negatives for our markets. The solution to the fiscal cliff issue may provide temporary relief," Dipen Shah, head of private client group research, Kotak Securities, said.

This is also a reason for most stock picks from broking houses to be from the beaten down sectors. Companies, especially in the construction, capital goods, power and other heavy industries, which were affected due to low capex and high interest rates, could be in the a limelight.

"We are expecting 50 basis points cut in rates by January, which in combination with other things, will lead to a turnaround year for Indian companies," says Saurabh Mukherjea, head of equities, Ambit Capital. Market experts advise to stay with quality stocks.

They say, it would be rewarding to focus more on individual stocks than on the indices. Estimates for 2013 suggest that top 200 companies are expected to report 12-14 per cent growth in earnings with the biggest contribution coming from telecom, retail, real estate, auto, media and healthcare, which on an average are expected to post 29.5 per cent earnings growth.