After a year marked with big gains of over 25 per cent, market experts are hoping that the rally will continue on Dalal Street in the new year. They are particularly bullish on defensives like pharma, FMCG and private bank stocks, which witnessed an upswing in investor interest in 2012.
The Bombay Stock Exchange's banking sector emerged as the best performer among the 13 sectoral indices, outperforming benchmark index, Sensex, in 2012. The gain of 56.13 per cent in BSE's banking index was more than double the Sensex's over 25 per cent rise.
In terms of sectoral performance, BSE banking index was followed by real estate index, which saw a smart jump of 52.52 per cent last year after suffering a massive fall in 2011.
FMCG index saw a 48.94 per cent surge, while the health care segment rose by 38.67 per cent in 2012.
"FMCG, pharma and private sector banks continue to be safer bets and can be bought in dips. They are already in uptrend and still have much potential for upside," Rakesh Goyal, Senior Vice President, Bonanza Portfolio said.
Metal sector has been cyclical in nature. Positive signs of economic recovery is likely to give boost to the sector, which has been hammered down to much lower levels. Any further improvement in global demand, increased capacities by Indian firms can be beneficial this year, he said.
The BSE metal index gained 18 per cent in 2012.
Market experts are of the opinion that signs of sluggish economy worldwide is of high concern. Indian markets have rallied on the back of recent reform measures in the country and positive news from global markets. However, any setback in any of these areas can lead to selling pressure, they said.
IT stocks were beaten down during 2012, with the index falling over 2 per cent mainly on account of the Euro zone crisis.
"We believe 2013 onwards lot of political pressure from the US (at least noise) will go away and Euro region will muddle its way, leading to some pick up in outsourcing activity. IT stocks are building in very low growth hence, any small improvement in demand may lead to significant upmove," Daljeet S Kohli, Head Research, IndiaNivesh Securities said.
According to him, 2013 will be the year of stock selection and wide dispersion within the sectors. While macros will be positive for equity markets this year, ground realty in terms of corporate earnings will take time to recover, Mr Kohli said.
"We expect soft interest rates regime and benign inflation in 2013. However, politics will be a wild card as there are many state elections in 2013 and middle of 2014 general elections are due. We expect increased volatility depending upon noise generated from news flow," Mr Kohli added.
Marketmen said budget for 2013 will be watched keenly as probably this will be the last budget before elections thus raising doubts about it being a populist one.
According to Mr Kohli, there will be large opportunity in stocks in private sectors where promoters hold more than 75 per cent stake and have to bring down their holding to 75 per cent by June 2013 as per regulatory guidelines.
There could be large number of Offer For Sale (OFS) or rights issues this year, he said.
Focus will be on rate-sensitive sectors as hopes are again strengthening for interest rate cut in 2013 as inflation has cooled down a bit, Mr Goyal said.
The central bank had hiked key policy rates 13 times by 3.75 per cent between March 2010 and October 2011 to tame rising inflation.
The RBI has, however, indicated that in view of the likelihood of inflation moderating further, it could go in for a rate cut in its third quarter policy review in January. If inflation continues its downward trend, RBI may opt for rate cut in January, experts say.
"Global economic outlook remains weak currently. Europe has been going through fiscal pains and few countries, including Greece remain in precarious situation. Growth in Europe and other European countries such as UK is stagnant. In the US, while the overhang of presidential elections is off, there are concerns regarding the fiscal cliff," Atul Kumar, Senor Fund Manager, Quantum Mutual Fund said.
One worry for domestic equity market can be the upcoming elections in 2014 which can increase the populist measures, he added.
2012 turned out to be a good year for equities, even though the Indian economy faced signs of slowdown. The year gone by, saw a deluge of foreign money, possibly attracted by lower valuations and expectation of reforms.
FII investment in the country's equity market reached Rs 1,27,455 crore ($24 billion) in 2012.