India Rising Now Playing Uninterrupted on Dalal-St

India Rising Now Playing Uninterrupted on Dalal-St

Markets has climbed to a record high on brimming investor confidence on the Narendra Modi Govt. And Modi as India’s Prime Minister at the head of a team that’s expected to push for bold steps to revive economic growth, although there is some concern that valuations may have risen too high. Hence the current downfall is being looked as consolidation phase leading to segregation of value stocks.

Sentiments was boosted by better-than-expected results of foreign visit of our Prime Minister and warm interactions with world economic leaders and promise to invest in growth of India. The Sensex has rallied almost 3000 points by now on the expectations of good governance, with more than 726 companies hitting their 52-week high on the BSE. The broader NSE Nifty has also surged more than 1000 points. “Investors are anticipating a spate of reforms from the new government, which could lead to an economic re-rating.” Shares of power and oil and gas companies have led the index gains on expectations of strong reforms started by the new government.

 Select global brokerage houses have, however, become cautious  about Indian markets, with the Nifty having risen more than 30%  since September 13 last year, when Modi was declared the BJP’s prime ministerial candidate. “There is also a risk that the government might not be able to live up to such high investor expectations, especially in the short term.” They are afraid that the Govt may not be able to live upto the hype created. Some of the leading foreign brokerage houses have become cautious, citing expensive valuations relative to lower GDP growth. They have downgraded India’s rating to neutral from overweight and advise no emerging market investors to wait for better buying opportunities. The new government needs to tackle several economic issues urgently and this could swiftly deflect investor attention. The most pressing one will be striking a balance between pro-growth measures and monetary tightening given that the underlying fiscal situation could be worse than it appears. But aren’t we expecting too much too soon.

There is also a strong possibility that the Reserve Bank of India may not lower interest rates given the current inflationary situation and the possibility of a weak GDP data in 3^rd QE. Investors need to judge whether the rally has already discounted most of the good news and if share prices are at risk of a setback. The Sensex is trading at around 16-18 times forward earnings, which is expensive compared with other emerging markets. “The recent market rally has taken valuations to a zone where they can no longer be termed cheap.” The rally over the past eight months has led to price-earnings ratio expansion as companies have cut earnings estimates over the past few quarters due to the slowdown.

However, foreign institutional investors have pumped more than Rs 60,000 crore into equity markets so far this year as global investors have built up high expectations on India. And they are not playing short term fiddle so why as Indians we are looking towards the counters everyday. India indeed is on a roll with 60% of its population below 30 years in age, please understand even if Modi fails India will grow leaps and bound. That’s what the foreign investors are banking on. And if Modi succeeds then it will be what we call “ Sone pe Suhaga”.

Don’t miss this opportunity. Participate in whatever big or small capacity you can as per your risk profile.

HAPPY INVESTING.