Calendar 2003 is likely to end with double-digit returns on the stock markets after a loss-making turbulent three years.
While 2002 is likely to end with marginal gains, years 2000 and 2001 were the worst hit with a steep 26.6 per cent and 23.9 per cent decline in the sensex, the worst market performance in almost a decade.
The optimism for 2003 stems from good liquidity, below average valuations, better corporate balance sheets, strong rupee, almost an end to Unit Trust of India's selling pressure, lesser room for stock market irregularities, potential of increased household borrowings and hopefully a better monsoon.
According to market participants, the current account is the main source of surplus liquidity.
Coupled with stagnant inflation, sluggish growth, and easy monetary stance, liquidity will continue to be in favour of equities.
Unit Trust of India, which has been the biggest seller of stocks over the past two years may slow down its aggression post May 2003 after the scheduled redemption window reopens.
While the triggers for the market in 2003 could be policy initiatives, especially on the divestment side, the risk of it not materialising is higher, a stock broker said.
Year 2002 had upsides on the positive divestments announcements, the volatile policy response dragged down the markets.
"However, even at improved levels over the past two months, the stocks across the board are below averages and hence it could turn supportive for the upsides in the new year," an analyst said.
There are fewer negative influences expected next year that could directly affect the sentiments of the equity market.
"The JPC report is now tabled, UTI is almost through with its troubles and the selling pressure is expected to decrease post May 2003 and above all with tighter regulatory norms there is lesser room for irregularities," a stock broker said.
The only expected downside risks are elections in 9 states over next 15 months, sluggish industrial growth and resultant weaker earnings growth and feeble global equity market performance which may dampen the sentiment.
The outcome of nine state elections which are to be held over the next 15 months, a few of them in key states such as Delhi, Himachal Pradesh, Madhya Pradesh and Rajasthan could have a significant bearing on policy response.
"The impact of the drought can continue to slow industrial growth in 2003 and may result in stressed corporate earnings especially in the industrials and consumer discretionary sectors," an analyst cautioned.
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