FB   
 
Powered bysps
        Society for Policy Studies
 
 

 
A stretched market: On Indian stock indices hitting a new peak
Posted:Apr 26, 2017
 
Print
Share
  
increase Font size decrease Font size
 
The major Indian stock indices have rallied strongly despite lingering concerns over their historically rich valuations. Both the BSE Sensex and NSE Nifty reached all-time highs on Wednesday, up about 13% and 14%, respectively, since the beginning of 2017 and well above the performance of developed markets. The Sensex surpassed its previous high to end the day at 30,133 while the Nifty settled on a record closing high of 9,351. Investors have attributed the rally to the better-than-expected earnings results of blue-chip companies (like Reliance Industries Limited that posted record earnings this week), strong fund inflows from foreign institutional investors (FIIs) and the strengthening of the rupee. Waning concerns over the election results in France, U.S. President Donald Trump’s anticipated tax reforms, and the allaying of concerns about the long-term impact of demonetisation may have also helped fuel the rally. FIIs have been at the centre of action over the past few months, turning into bullish buyers after the temporary slump in their investments after the demonetisation exercise. In the first three months of 2017, FIIs have poured $6.75 billion into equities, up from inflows of just $3.19 billion and $3.18 billion in 2015 and 2016, respectively. Adding strength to the rally, domestic investors have been net buyers of equities, investing almost ?16,000 crore since the beginning of 2017.
 
Going forward, despite the willingness of foreign buyers to pay higher multiples, there remains the substantial risk of a downside attached to this rally. The market capitalisation of Indian stocks, according to a report by Motilal Oswal Securities published in March before the rally, rose 40% over the last year compared to a 21% increase in the overall world market cap. This increased India’s share of world market cap to 2.5%, marginally above the historical average of 2.4%. Yet corporate earnings, which determine equity returns in the long run, have been lacklustre despite showing early signs of recovery from the demonetisation shock. While the current earnings season has been modestly positive, overall, reasons to justify the high multiples remain elusive. The implementation of the Goods and Services Tax is expected to dampen earnings in the near term, and the absence of recovery in capital expenditure by India Inc. offers little hope to expect an earnings boost. The impact of the strengthening rupee on corporate earnings is another concern. Investors, especially foreigners who benefit from an appreciating rupee, have taken the strong rupee as a vote of confidence in the economy. But its likely impact on the earnings remains ignored. According to UBS, a 1% appreciation in the rupee could reduce the Nifty’s earnings by some 0.6%. All that said, the bears in the Indian markets have been proven wrong for long. It would not be surprising if investors stretch themselves further to support the rally.
 
The Hindu, April 27, 2017
 
 
 
 
Print
Share
  
increase Font size decrease Font size
 

Disclaimer: South Asia Monitor does not accept responsibility for the views or ideology expressed in any article, signed or unsigned, which appears on its site. What it does accept is responsibility for giving it a chance to appear and enter the public discourse.
Comments (Total Comments 0) Post Comments Post Comment
Review
 
 
 
 
spotlight image Indonesia’s President Joko Widodo has confirmed his presence for the occasion. In an exclusive interview with INDIA REVIEW & ANALYSIS, Indonesia’s Ambassador to India, Sidharto R.Suryodipuro, reminded Nilova Roy Chaudhury that the first Chief Guest for India’s Republic Day celebrations, in 1950, w
 
read-more
The words of Ho Chi Minh  “Nothing is more precious than independence and liberty” rang true for the people of the erstwhile East Pakistan when, with increasing brutality, the West Pakistani oppression spread across the land, writes Anwar A Khan from Dhaka
 
read-more
In a significant boost to New Delhi's Act East Policy, India and Japan set up the Act East Forum on Tuesday as agreed during Japanese Prime Minister Shinzo Abe's visit to India this year for the annual bilateral meeting that would help to focus and catalyse development in India's Northeast.
 
read-more
  United States Secretary of State Rex Tillerson reiterated on Friday Washington's warning that “all options are on the table” to meet North Korea's nuclear threat while offering to keep the lines of communication with Pyongyang open.
 
read-more
What is commonly referred to as the “border dispute” between India and China manifests itself in two distinct and separate areas of contention. One is Aksai Chin, a virtually uninhabited high-altitude desert expanse of about 37,000 square kilometres. The other is what is now the Indian state of Arunachal Pradesh,
 
read-more
The first thing that one sees when a flight approaches New Delhi is thick smog that envelopes the city and its lack of greenery.  In almost all other major cities of India lack of greenery is the most obvious sight that one sees when approaching it by air.
 
read-more

Pakistan has agreed to allow the rupee to depreciate after holding talks with the International Mone­tary Fund (IMF) on the country's economy.

 
read-more

Two major global changes in the past year; the ‘Brexit’ referendum and the advent of Donald Trump, writes Sandeep Kaur Bhatia

 
read-more

It is also imperative for India to explore other regions for markets. Its trade deficit with Latin America has been narrowing. Also, its trade with Mexico, Colombia and Guatemala has increased, ...

 
read-more
Column-image

Over the last 25 years, India's explosive economic growth has vaulted it into the ranks of the world's emerging major powers. Long plagued by endemic poverty, until the 1990s the Indian economy was also hamstrung by a burdensome regulat...

 
Column-image

Title: A Ticket to Syria; Author: Shirish Thorat; Publisher: Bloomsbury India: Pages: 254; Price: Rs 399

 
Column-image

Gorichen, a majestic peak in the Eastern Himalayas at an altitude of 22,500 feet, is the highest in Arunachal Pradesh. Beautiful to look at and providing a fantastic view from the top, it is extremely tough climb for mountaineers.

 
Column-image

It is often conjectured if the reason for long-standing conflicts and insurgencies, in the developing world, especially South Asia, is not only other powers fishing in troubled waters but also the keenness of arms industries, mostly Western, to...

 
Column-image

Title: The People Next Door -The Curious History of India-Pakistan Relations; Author: T.C.A. Raghavan; Publisher: HarperCollins ; Pages: 361; Price: Rs 699