Unprecedented monetary and fiscal relief packages globally have helped trigger a wave of buying across emerging markets like India, even as valuations have entered uncharted territory
The BSE Sensex, a gauge of the performance of India’s leading 30 stocks, hit the 50,000 milestone for the first time on Thursday, a remarkable feat considering the country’s gross domestic product (GDP) is set to post its biggest-ever contraction this financial year due to the impact of the Covid-19 pandemic.
The index hit an intra-day high of 50,184, but gave up the gains to close at 49,625, down 167 points, or 0.34 per cent. Still, the index has surged 92 per cent from its March lows, aided by record foreign inflows.
Unprecedented monetary and fiscal relief packages globally have helped trigger a wave of buying across emerging markets
like India, even as valuations have entered uncharted territory. The Sensex currently trades at 34 times its trailing 12-month earnings. Even on a two-year forward basis, the index commands a price-to-earnings (P/E) multiple of 20 times. This is based on a lofty projection of 60 per cent earnings growth over the next two financial years.
For now, valuation concerns have been put on the back burner as foreign portfolio investors (FPIs) are pumping in $4 billion every month on average since May. Flows have accelerated since November on optimism around more relief measures in the US under the Joe Biden administration. Also, medical breakthroughs to contain the spread of the virus have raised hopes that economic activity will return to normalcy later this year.
“The Indian markets
have witnessed a strong momentum over the past few months on the hopes of a faster economic recovery. Also, sustained FPI inflows and strong corporate earnings have kept the sentiment high. The buzz around the upcoming Budget has also added strength to the markets.
The Budget could potentially lay the foundation for a long-term economic growth path. Overall, we expect the market to continue its upward journey on the back of healthy corporate earnings, strong liquidity, positive developments on the vaccine front, broad-based economic recovery, and low interest rates,” said Motilal Oswal, managing director and chief executive officer of Motilal Oswal Financial Services.
Barring a few minor hiccups, the Sensex’s journey from the March 23 intra-day low of 25,881 to Thursday’s high of 50,184 has been linear. The index may still not be done with its meteoric rise.
“Valuations are now quite rich. We are not expecting a very big upside from hereon. At the same time, we don’t expect the markets to correct. As more US stimulus comes through, stocks may continue to rally on the back of liquidity. But our year-end target for Nifty is 15,000. So there isn’t big upside left anymore,” said Amish Shah, India Equity Strategist at Bank of America.
The slightly more broad-based Nifty 50 index on Thursday closed at 14,590. Most global indices have rallied this week on optimism around Biden’s $1.9 trillion pending package.
Since March lows, India’s market cap has seen a spurt of Rs 95 trillion to Rs 196.5 trillion. While all Sensex components have gained during this period, stocks like IndusInd Bank and Mahindra & Mahindra have tripled, while index heavyweights Infosys and Reliance Industries have soared 2.5 times each.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.