New Delhi, Dec 9: A FICCI survey of various stakeholders of the stock market shows that a majority believe the Sensex is heading for the level 20,000-23,000 in a year from now and will cross 25,000 mark in two years time.
The widespread belief among the stake holders is that the markets will see still larger inflows, arising from international investors quest for higher returns and improved portfolio diversification, buttressed by ongoing structural changes in India' economy and its financial markets.
On the sectorwise stars of the markets, banking and engineering sectors have been identified as well performing and IT, pharma and auto that are likely to under perform.
The Survey says the main challenge ahead is to carry out critical reforms in the areas of corporate debt and pension reforms and to deepen the depth of the market and strengthen the market structure.
The Survey was intended to capture the sentiment of the market and its stakeholders.
The respondents included brokers, CFOs, finance managers, investment bankers, mutual funds, portfolio managers, Asset Management Companies and private equity.
The Survey found out that the high volatality in the markets has not dampened the market sentiment.
''The mood of the market players is one of over optimism,'' the Survey says.
As many as 58 per cent of the respondents believe that the market in a year's time will achieve 20,000-23,000 level and 55 per cent are of the view the market will cross the 25,000- mark at the end of two years.
With bank credit becoming more expensive and External Commercial Borrowings (ECB) becoming tighter, the capital market is the only other option for raising funds. This is one of the reasons for the bullish sentiment.
The Survey found that in the near future, more private placements and issues are expected to hit the market, leading to high turnover both as regards the the cash and the derivatives segment.
India stock market have historically been more volatile while its returns, until recently, under performed. This is largely due to the fact that the past decade witnessed several political and economical uncertainities undermining business and investors confidence.
It only since 2006 that the stock market have begun to over perform the world's index.
The reason is that the liberalisation measures have begun to pay results in the form of high economic growth and hence have started attracting large foreign capital inflows and domestic capital.
A high 59 per cent of the respondents feel that the Indian market is speculative.
FICCI says it thus important to have adequate levels of risk management systems at the exchange and broker level to overcome the risk caused by speculative movements in stock prices.
A good 53 per cent of the respondents described Indian markets to be "fairly valued", while 47 believe it is "over valued." As to what is driving the market a high 94 per cent attributed this to FII inflows, 88 per cent said it was corporate earnings, and 59 per cent ascribed it to global equity.
What are the factors that could act as dampeners? While 81 per cent of the respondents identified increase in domestic interest rates as a major factor, 77 per cent felt that a further increase in crude prices was an issue of concern for the market players.
However, a majority of the respondents did not consider reduction of the interest rate by the Fed as a major factor infuencing the movement of the market.
The depth of the market has been a major cause of concern. A mjority (53 per cent) of the respondents still feel that the market is shallow and adequate measures should be taken to widen the market.
Some Survey participants also suggested that a number of PSUs, which are not currently listed, should be allowed to be listed.
There are other compelling arguments for Government selling its stake via the market. Such offers, it is felt help deepen the market and also enable equitable spread of wealth generated by these companies.
The following are the other key elements brought out by the FICCI Survey: --- 69% of the respondents believe that due to the influence of FII's on market movement, the retail investors tend to follow them in a herd like fashion. Some speculative activity by FII's may mislead the investor. This could be a disturbing factor;.
---52% of the survey participants state that FII outflow will have an adverse impact on the markets as domestic institutions are not strong enough to sustain the pace of market growth on its own; -- A large number of respondents (48 per cent) believe that in long run domestic liquidity in the form of retail money, HNI investments, mutual funds and ULIPs, pension funds should provide substantial liquidity support to the market. The policy makers, therefore, need to take active measures to strengthen these domestic institutions and mechanism.
-- Mutual funds (84 per cent) and ULIPs (28%) have been clearly identified as prudent instrument for investments by retail investor.
Mutual funds are a viable long-term saving vehicle. This will help them benefit from the market growth as well as hedge the risk by taking support of professional expertise.
---91 per cent of the respondents believe that the proposed regulation on Participatory Notes (PN) is justified. The issue at SEBI's end was two-pronged-at the macro level, managing the liquidity was becoming a major challenge and secondly in the interest of market integrity transparent inflows were indispensable.
----94 per cent of respondents find SEBI rules for regulating FII's favourable -- 55 per cent of the respondents believe that capping on PNs would not affect the inflows;, There is a general belief among the investing comunity that the market regulator is playing an active role in seeking ways to develop the country's financial markets, introduce innovative products, greater risk management and provision of a strong market infrastructure.