'With slowing GDP, 2012 won't be a smooth year for mkts'

This year (2012) will not be a year of consolidation for the markets despite having one of the best January rallies in 20 years, said Jyotivardhan Jaipuria, head of research, BofA Merrill Lynch, in an interview to CNBC TV 18 .

He said that after a terrible performance last December, expectations had fallen really low. But now, after an 11 percent rise in January, expectations are building up.The markets, however, are unlikely to consolidate from here on smoothly. Slowing GDP and poor earnings will weigh on the markets, which will see ‘see-sawing’ changes this year, he said.

He said there are “long-only” investors who have come into the market, and that there is investor interest in India after its abysmal performace last year. But, the mood is to buy on every dip.

All eyes are still on what happens in Greece, as the country is almost ready to seal a deal with its creditors. The second thing that will influence the markets is the credit policy on15 March, as the Reserve Bank has already given a positive signal on rate cuts. In fact, Jaipuria says the first rate cut could come in March followed by multiple cuts through the rest of the year.

The third big event will be the annual Union Budget . “These policymakers are aware that there is a general feeling that there is a sense of drift so they need to show that so that people think policymaking is back in action.”

The government could also get more active in the infrastructure space by entering into joint agreements with private parties to speed up the process.

All these factors combined have, however, raised the bar of expectations, and any disappointment could come as a negative for the markets, Jaipuria added. Even if inflation starts inching up again, people will get worried about India.

As for downgrades, he said earnings cut for this financial year (2011-12) are largely over. But cuts for the next year (2012-13) should begin by March. He said as the next financial year approaches, analysts will look at earnings estimates more closely and cautioned that downgrades are far from over.

For now, he is bullish about rate-sensitive sectors like auto, while mildly bullish about banks. He is also overweight on pharma, though it is typically seen as a defensive sector. In the case of telecom, however, the bank is neutral because of the regulatory concerns as well as earnings growth.

Watch video: Greece, Budget, Credit Policy key triggers now: Jaipuria