Gold retains best asset class tag as mkt volatility is here to stay

New Delhi: After an average loss of over one million dollars in every ten seconds of trade in stocks last year, market pundits seem to be playing it safe and are predicting Sensex levels ranging from as low as 8,000 to as high as 28,500 points in 2012.

Going by these wide projections, the market valuations could either plunge to a low of about half the current levels, or might double in the New Year. The Sensex ended the year 2011 at 15,454.92 points.

On the other hand, analysts appear much more optimistic about another year of rally in another major asset class, the gold, which emerged as the best investment avenue in 2011 as well, despite a high level of volatility.

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As the stock market investors burnt their fingers with heavy losses of Rs 19.46 crore ($619 billion) in 2011, the tried-and-tested gold added to its glitter and silver also managed to retain part of the sheen it gained during the year.

In percentage terms, the losses in the stock market were 24.6 percent, while gold appreciated 32 percent and silver by 10 percent during 2011. Retaining its tag of the best asset class, gold prices began the year 2011 at Rs 20,890 per ten grams and ended at Rs 27,640. On the other hand, the silver prices rose from Rs 46,500 per kg to Rs 51,150.

[caption id=“attachment_170164” align=“alignleft” width=“380” caption=“During the year, gold prices had risen to close to Rs 30,000, while silver had gone close to Rs 60,000 . AFP”]  [/caption]

During the year, gold prices had risen to close to Rs 30,000, while silver had gone close to Rs 60,000 at one point of time. While gold prices managed to retain most of their gains, the same was not the case for silver.

On the other hand, the stock market barometer Sensex fell 5,054 points during 2011 to end at 15,454.92 points. The total investor wealth, measured in terms of cumulative market value of all listed stocks, dipped by Rs 19.46 lakh crore to Rs 53,48,644.8 crore ($1.002 trillion).

Taking into account the total number of trading sessions during 2011, this corresponds to an average loss of more than one million dollars in every 10 seconds of trade. Religare Securities’ CEO Gagan Randev said that the volatility in stock markets was here to stay, at least in the short to medium term.

“Our view is that the markets will bottom out in first quarter and then begin a phase of upward consolidation. Our level for Sensex for 2012 is 18,000,” he said. Mutual fund house Quantum Asset Management Co Director Ajit Dayal said that “those wishing for ‘more certainty’ (in the new year) should use their wish for something more likely to come true.”

“Global economic uncertainty will continue to plague us as it has since the year 2008… A butterfly flapping its wings in the US could cause a storm in Europe; a hiccup in Europe could cause a meltdown in Asia,” Dayal noted.

Noting that the stock market should benefit from growing earnings of Indian companies in the long run, Dayal said FIIs will determine the level of share prices.

“A 28,500 Index is possible, and so is an Index of 8,000. Greed will take it up - just as fear has brought it down,” he said, while advising the long-term investors to “build a sensible portfolio and ignore the passing effects of a million butterflies flapping their wings.”

Analysts at Merrill Lynch-Bank of America, on the other hand, said that the Sensex could correct to 14,500 level in the next six months and predicted a 19,000-mark by year-end.

Angel Broking’s Managing Director Lalit Thakkar also said that the markets would remain volatile in the near term and predicted a 17,500-level for the Sensex by December 2012.

Painting the most bearish picture, global equity research major CLSA said that “a violent selloff down to the 11,000-12,000 levels on the Sensex, combined with a further depreciation in the rupee to the Rs60/USD level, now appears quite possible.”

CLSA, however, said that “a selloff to the 11,000-12,000 level on the Sensex, particularly if combined with a rupee move to the 60 level, should generate sufficient noise in India’s always noisy media to wake the politicians in Delhi up. That would represent a great buying opportunity.”

Religare’s Randev said that the movement in world markets would be determined by the reaction of the political class to the prevailing economic scenario.

“Domestically, the outcomes of the elections in five states, the Budget of 2012 (which is feared to be populist) and the rate at which inflation comes down (which will also result in interest rates coming down) will be events to be watched in the first half of calendar year 2012,” he added.

Quantum MF’s Dayal said that it would be good to “seek comfort in a stable India” against a backdrop of volatile global markets. But it could be another futile wish for 2012, Dayal said,

as “a disconnected government” is fighting battles within their allies and outside.

Talking about another asset class, the gold, Quantum MF’s Chirag Mehta said that its relatively high prices, seen over the past few years, are well supported by fundamental factors. “Over the long term, we can clearly see that gold prices are trending upwards. The macro-economic and supply-demand drivers point to a continued increase in gold prices.

“Demand from consumption centers, such as India and China largely seem to be on a firm footing,” he said.

While dismissing any ‘bubble’ developing in gold, Mehta said that “investment demand has been robust and is likely to continue to grow, lending support to gold prices.”

PTI