To keep growing in 2010, stock markets want costs under check

Having doubled investors' wealth in 2009 -- despite headwinds from the global economic slowdown -- Indian stock market has the potential to grow even stronger in the new year and this time around the benefits should reach retail investors as well and not just to promoters and foreign funds, experts believe.
The target in 2010 should be to regain the all-time peak of 21,206.77 points (touched in January 2008), and even beyond, for the Sensex, which ended the year 2009 at 17,464.81 points, up 7,817.50 points (81 per cent) from the year-ago level, an analyst said.

In the process, the market saw the cumulative investors' wealth nearly doubling in 2009 to over Rs 60,00,000 crore as foreign investors parked their faith as well as money in the world's second fastest growing economy.
Analysts believe that the market has potential to push investors' wealth to Rs 100,00,000 crore, if all goes well and conditions are conducive for a continued bull run.
"Today, India is a preferred destination for equity investors across the world as is evident from the FII and FDI inflows (USD 35 billion) into the market this year," ICICI Securities chief Madhabi Puri Buch said, adding that the strong flows were expected to continue in the new year.

ICICI Securities' Buch noted that the volatility index for the market has dropped to 20 points, from near 80 a year ago, and that it indicates growing confidence in the markets and thus strong flows would be expected to continue.
"Our own people, particularly retail investors could also recognize this and reap the long term benefits of investing in an economy which is expected to grow at the rate of at least 7.5-8 per cent for the next many years.

We should take care not to lose this opportunity out of a case of "ghar ki murgi dal baraabar (a proverb to drive home the point that 'the resources at home are always taken for granted')," she noted.
The market's wishes from the new year include lower transaction costs, continued expansion from long-term capital gains tax and measures to keep inflation under check so that the a low interest rate regime prevails.

DFC Securities' Vinod Sharma said: "My wish is that our country does well in all fields. The second wish is that Finance Minister keeps the long term capital gains exemption intact, which will help in capital building. The third wish is that the investors should make money, even if that means that our expectation for a slide in first half have to go wrong."
The stock market in 2009 mostly derived strength from the government's fiscal packages and sustained capital inflows. India recorded 7 per cent growth in the first half of this fiscal, thanks to increased manufacturing activity. Foreign Institutional Investors (FIIs) have bought shares worth over Rs 80,000 crore - a record high.

However, the participation from retail investors was nothing great to write about and the analysts expect that their entry into the market would provide further strength.
Brokerage firm Bonanza Portfolio's Avinash Gupta said that the market was hoping for additional policy measures to expand the market and promote risk taking, especially by domestic investors.
"A substantial reduction in the cost of transaction to the investor such as Securities Transaction Tax, Stamp Duty, Exchange Transaction Charges, Service Tax etc would will help expanding the market in a big way," he added.
Geojit BNP Financial Services' Research Head Alex Mathews said that the market wishes for 2010 included inflation being kept below three per cent level, more stimuli from government as and when it is required, sufficient monsoons and speedy disinvestment.
Ashika Stock Brokers' Research Head Paras Bothra also agreed that inflation needed to be curbed down, especially the food inflation, so that the country maintains a low interest rate regime.
The market players are unanimous that the biggest possible dampener in the short term for the market could be a hike in interest rates by RBI, which is meeting in late January to review its monetary policy stance.