Focus shifts to mid-caps: BL

Investment managers optimistic about first half of 2010, but nervous about second half.


Tightening of monetary policy may limit flow of cash to the stock market this year.
This week Dalal Street may see the Sensex move within a range, but mid-cap stocks may outperform.
Bulls have decidedly shifted their immediate focus out of blue-chips. However, this does not mean that any
good news and better-than-expected numbers would be ignored. Fund managers and investment advisors
are busy looking for room to direct funds. Stock picking in the mid-cap space appear to be gaining
momentum for the time being.
Globally, investment managers and strategist are optimistic about the outlook for the first half of 2010, but
nervous about the second half. Wall Street bankers are not hesitant in recommending fund flow towards
emerging markets.
According to fund flow tracker EPFR, global emerging markets and BRIC funds witnessed record inflow from
investors in the first week of 2010.
Except for Mr Jim Rogers, who has a negative outlook on the US economy and believes that the country is
heading for a currency crisis, an overwhelming majority (80 per cent in the latest Merrill Lynch survey)
among Wall Street fund managers expect the biggest economy would grow.
According to Mr Michael Hartnett, Chief Global Equity Strategist at Merrill Lynch: ?Investors are nervous but
optimistic heading into the new year and respondents (to a survey) are looking for a 7.7 per cent return from
global equity markets.?
Wall Street's most influential bank, Goldman Sachs, is bullish about a continuing rally this year in the US and
Europe, with some moderations. Goldman expects investors to be more daring and BRIC exposure is
among its three key themes.
RBC is also bullish about emerging markets, which it expects will produce strong return, particularly in the
first half. But it feels the second half of 2010 will be fraught with risks that could lead to a sizable market
downturn. It is in favour of a disciplined risk management. RBC has cautioned against a few key risks ?
vulnerability of the US economy to less than expected growth in private sector demand, dollar collapse in a
disorderly fashion, excessive fund flow into emerging markets creating a false sense of security and their
policy makers' inability to handle emerging situations in a market-oriented way.
Despite recovery, UBS feels risks are numerous. It suggests return to fundamentals, ?quality? stock selection
and fair valuation. Morgan Stanley's strategy team thinks the withdrawal of stimulus will be a dangerous
period for the US economy and markets. Market gains will be more difficult going forward and thus the risk-
reward ratio of the current market is substantially more negative than it was a few months ago. Credit Suisse
also believes that 2010 would be a difficult year for equities.
Though Deutsche Bank remains bullish in the near-term, especially the first quarter of the year, it is
increasingly cautious about the prospects in the later part of 2010. Sovereign debt and inflation are
considered as potential hurdles to the continuation of the global equity rally.
The outlook for local equity market may not be an easy one as phased-out policy tightening takes place
through the year. However, early part of the year is expected to see steady gains.