“The month of January, 2012, saw a strong FII inflow of $2.2 billion in Indian stock markets. Due to the surge of money, the S&P Nifty rallied 12 per cent, while CNX mid-cap rallied 16 per cent. Cyclical sectors outperformed the so-called defensive sectors. Which presents the following question — are we in a bull market? Bull markets start with favourable liquidity, and attractive valuations and progress on fundamentals. Though the liquidity conditions and reasonable valuations have led to a strong rally in January 2012, fundamentals remain uncertain in our opinion.”

— BNP PARIBAS MUTUAL

“Have the fundamentals of the Indian economy improved to warrant a sharp rally in recent times? Do global equity markets think that the Euro zone problem has come to an end? While predicting any outcome to the Euro Zone sovereign debt crisis is difficult, it is quite likely that the GDP of Euro Zone will contract in 2012. Hence, it is difficult to see a sustained medium-term rally in the Euro Zone.

Locally, inflation has come down, as per expectations, and interest rate reductions are likely in a few months. GDP growth is unlikely to accelerate substantially in 2012. As a result, valuations, especially of sectors that have gone up sharply, aren't inexpensive. We think therefore, that after such a sharp rally, Indian markets will consolidate, or give away a part of the recent gains. The state election results and Union Budget could provide some direction. In the near-term, equity markets will continue to mirror global movements. This rally can be sustained in the medium term by good global markets, and a serious move by the government to stimulate the investment cycle.”

— DEUTSCHE MUTUAL

“What are our key expectations from G-Secs/Corporate Bonds in 2012? One, corporate spreads for good-quality AAA bonds could narrow by 20-30 basis points (bps), falling to near 50 basis points from the current 80 basis points. Two, 10-year G-Sec is to average 8 per cent during the year but is likely to see lower levels during the year. Three, one-year CD rates could yield 100-125 bps lower during Q2/Q3 of 2012. 2-3 year corporate bond yields may also head lower by 50-75 bps. Yield curve should steepen through 2012. Thus, 2012 is expected to bring good times to fixed income investors. A fall in short-term rates and steeping of the curve will benefit medium duration funds, while narrowing corporate spreads and 10-year G-Sec at 8 per cent may benefit long duration funds.”

— BIRLA SUN LIFE MUTUAL

“The year 2012, as a calendar year, promises to be significantly better for the Indian debt markets, than 2011. We reiterate our optimistic view with a short-term perspective for the non-SLR segment, and being neutral on the gilt segment. Our medium-to-long-term view is neutral with an undertone of cautious bullishness. Investors may do well to remain invested with the bulk of their investments at the shorter end of the curve for now, while cautiously investing part of their funds towards the longer end of the yield curve. Investors with a medium-to-long-term perspective are advised to move along the duration curve in a confident but calibrated manner, as we move into the calendar year 2012.”

DAIWA MUTUAL

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