rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Business » Sensex at 20K: How long will the bull run last?

Sensex at 20K: How long will the bull run last?

Last updated on: October 14, 2010 12:09 IST

Sensex at 20K: How long will the bull run last?

     Next

Next
Vivek Mahajan Mumbai

Investors have a reason to cheer as the Sensex continues to stay above the psychologically significant 20,000 mark.

Statistics show India has emerged as the best performing market across the world in September and the year to date. However, the pace and the strength of the rally have surprised everybody.

An obvious question that arises is: How long will the bull run last?

Click NEXT to read on . . .


Image: Sweden's Crown Princess Victoria during her visit to the BSE.
Photographs: Punit Paranjpe/Reuters.
     Next

Sensex at 20K: How long will the bull run last?

Prev     Next
Prev

Next
India has come a long way from the 6 per cent growth rate at the beginning of the decade to 8 per cent plus growth over the last five years.

A burgeoning middle class with good buying power fuels a rapidly growing consumer market and strong GDP growth.

FII inflows turned into a deluge once a satisfactory monsoon became evident. Rising acreage across crops should lower food prices. Interest rates may not thus move up too fast or hard.

Click NEXT to read more . . .


Image: Bombay Stock Exchange.

Prev     Next

Sensex at 20K: How long will the bull run last?

Prev     Next
Prev

Next
The strong economic outlook has been another positive. The fiscal deficit and the government's borrowing programme are under control. There may be an FDI explosion driven by reforms in several sectors such as airlines, multi-brand retail and finance.

The rollout of nuclear power projects and the expected infrastructure spending are other positives. GST and DTC - bold tax reform measures to be implemented in the coming years - will help stimulate governance and GDP growth. No wonder the optimism for India has increased as growth in the developed markets continues to be slow.

Click NEXT to read on . . .


Image: A broker sits near his computer terminal while trading at a stock brokerage firm in Mumbai.
Photographs: Punit Paranjpe/Reuters.
Prev     Next

Sensex at 20K: How long will the bull run last?

Prev     Next
Prev

Next
While the markets may have seen a sharp upsurge, the valuations may be high but not stretched. Unlike the last time when leveraging through derivative and margin funding was high, it is lower this time.

The Centre has effectively addressed the financing imbalances that had been at the root of past crises. The current rally is selective in that it is limited to the financial, auto, pharma and FMCG stocks. The blue chips of the last rally - RIL and Bharti - are down 40 per cent.

The last rally's hot sectors - realty, telecom and infrastructure - continue to bite the dust, signalling maturity. The peak valuations in the past rally stood at 25 and 20 times the FY08 and FY09 EPS respectively. The current valuations are at 19 and 16 times the FY11 and FY12 EPS respectively.

Click NEXT to read on . . .


Image: A broker at the BSE.
Photographs: Reuters.
Prev     Next

Sensex at 20K: How long will the bull run last?

Prev     Next
Prev

Next
However, don't ignore the risks associated with the sharp increase in commodity prices as India cannot absorb high inflation. Any sharp reversal in the FII flow could also put the markets at risk.

The land acquisition policy, to foster big new projects, is a burning issue. This needs to be addressed.

Click NEXT to read on . . .


Image: Be cautious.
Photographs: Reuters.
Prev     Next

Sensex at 20K: How long will the bull run last?

Prev     More
Prev

More
Despite these concerns, as the risk appetite increases and confidence returns in the financial markets, investing in emerging markets has become increasingly appealing.

Robust fundamentals, effective governance and a strong economic outlook should help India outpace the developed world's economic growth and provide attractive opportunities. Thus, with India at an inflection point and looking at a high growth momentum, the premium valuations are well justified.

Click NEXT to read on . . .


The author is Head Research, Aditya Birla Money.


Image: Brokers at work.
Photographs: Reuters.
Prev     More
Source: