Top investment bankers and brokerage houses see good returns in automobiles, banking, commercial vehicles, computer services, ferrous metals, pharmaceuticals and integrated oil sectors in the calendar year 2003.

The laggards are expected to be food-processing, telecommunication and non-ferrous metals.

However, most of the brokerage houses forecast chemicals in commodity, personal products and building & construction materials to remain neutral during the year.

Most of them are overweight on Tata Steel, Bajaj Auto, HDFC, Ranbaxy Laboratories, State Bank of India, Reliance Industries and Nestle. The stocks that have been marked as under-weight are Tata Engineering, Digital GlobalSoft, NIIT, Smithkline Beecham Consumer, Colgate-Palmolive and ACC.

Other large-cap companies such as Hindustan Lever, HPCL, Hindalco, MTNL and Mahindra and Mahindra, ICICI Bank and VSNL. The opinion on software sector varies vastly, most of them are still overweight on Infosys Technologies and Satyam Computer in absence of other comparable plays.

After two years of negative returns, Indian equities, which delivered about 3 per cent positive returns on the Sensex in 2002, is expected to deliver about 10 per cent returns in 2003. However, most of the brokerages and bankers are moderately bullish after averaging the downside risks.

The overall optimism for 2003 stems from good liquidity, below-average valuations, better corporate balance sheets, a strong rupee, a virtual end to the Unit Trust of India's selling pressure, lesser room for stock market irregularities, the potential of increased household borrowings and prospects of a better monsoon.

But the experts have cautioned that equities could be challenged by a treacherous fiscal deficit, slowing earnings growth and inadequate policy response (reflecting the nine state elections in the next 15 months).

While nine state elections in the next 15 months could put policy momentum at risk, slower industrial growth could adversely impact earnings growth and a high fiscal deficit that constantly exposes India to macro risks.

Analysts believe that the oil and gas sector may report extremely good growth in earnings helped by a low base effect. It is expected to be the dominant contributor to earnings growth.

Banks are likely to register 11 per cent of incremental profits, pharmaceuticals 10 per cent and automobile sector at 10 per cent to be the next largest contributors to growth. In terms of earnings momentum, autos and pharma are forecast to top the chart with expectation to register 70 per cent and 51 per cent year-on-year growth, respectively.

Hefty EBITDA margin expansion for auto, consumer, pharma, petrochem sectors are forecast while margins for telecom, media and software are expected to remain under pressure.

Analysts are of the view that the turnaround in business conditions for the software sector are likely to reflect in its impressive 23 per cent y-o-y growth in profits after a gap of nearly two years. Most analysts expect the software sector to become the third largest contributor to market earnings.

Indian financial sector is expected to be yet another example of strong performance and analysts are expecting sectoral profit to grow manifold, barring one large financial institution turned bank.

The reasons outlined for the growth include the recent pick-up in commercial credit coupled with the continued strong growth in consumer loans has helped banks achieve robust loan growth which is about 18 per cent y-o-y, the improved loan-deposit ratio and larger share consumer credit coupled with aggressive deposit rate cuts undertaken during the quarter which will help banks maintain their interest spreads even as the asset yields have fallen.

Capital goods is expected to witness a strong y-o-y growth in sector profits primarily on the back of healthy revenue growth from Larsen & Toubro's E&C division and Bhel.

Cement, is forecast to be display improved profitability mainly due to price recovery for the sector as cement prices in western and southern region rose nearly 30 per cent and 20 per cent respectively from the lows of September operations.

Metals sector is expected to display mixed performance but overall sector profits are likely to be up on the back of continued strong performance by steel major Tata Steel.

On the telecom sector analysts expect an overall negative impact due to falling long distance tariffs.