No doubt, BSE’s market capitalisation has increased by a whopping 102.3% between April 2007 and December 2007, but volatility too has increased 
at a staggering pace (the coefficient of variation, which measures volatility, rose to 15 from 9.7 during the same period). If you add to this the popular perception that this year’s Budget, being the last one for the current regime before the general election in 2009, would be generally populist, you have the mother of all gorillas. So, while it is difficult to predict the short-term behaviour of the market, experts still believe that over the next 12 months, the Sensex would be trading about 15-20% higher than the current levels of 17,000-18,000, which should be in-line with India Inc.’s earnings growth. Affirms Hitesh Agrawal, Head, Research, Angel Broking to B&E, “The Sensex is trading currently at 14-15X the FY 2010 expected earnings of its constituent companies, which is reasonable considering our expected 8-9% GDP growth.”
As such, industry experts seem optimistic about the long-term growth of the market. “With estimated GDP growth at around 9%, and inflation contained within 5%, there is little doubt about the future of the Indian bourses. Over a long term of 4-5 years, a Sensex of 50,000 is also possible. We believe that Sensex could scale the 25,000 mark in FY 2009,” says an optimistic Chakraborty of Religare.
But then, there are reports from Goldman Sachs that have maintained an underweight on India. Goldman Sachs estimates valuation support at 15X P/E – a 20% downside or a range-bound market by end-2008. And there are many who feel that the Sensex would hover between a band, without any major gain or fall. (These were the same experts who had correctly predicted when the Sensex was over 21,000 points that a deep correction could force the index down to 16,000. And which happened.)
However, one obvious question still lags. What about the future of forthcoming IPOs, after the post-listing price debacle witnessed in the case of Reliance Power, and two companies pulling out their IPOs because of a lack of investors’ response? Would the recently-concluded and hugely-successful IPO of Rural Electrification Corporation hold water on listing? “As investors become risk averse, the fundamental valuation will become the basis of subscription. As long as the IPO pricing is justified, we believe that IPOs will be subscribed,” says Religare’s Chakraborty. “The participants now need to work more on their pricing strategy,” adds Ajay Parmar, Head, Research, Emkay Shares. One upside to the crash has been that the attractiveness of many stocks, which declined in the recent past, has increased. But from here onwards, would fundamentals, and not sentiments, drive the market? Market experts feel that investors should only do two things now – ‘Pray hard, and hope for the best!’
Interest(ing) times
For policy practitioners, the question concerning growth and its relationship with interest rate and inflation has always been of interest. As per the analysis of A. Vasudevan (former Executive Director, RBI), growth and interest rates are negatively related, which is statistically significant, whereas growth and inflation are positively related, but statistically insignificantly. If the GDP projections are anything to go by (8-9% for the coming year), it is apparent that India is facing the prospect of a slowdown, or slower growth in the coming fiscal. Inflation, currently pegged at 4.07%, much in the comfort zone of RBI, is still high by global standards. As the RBI Deputy Governor, Rakesh Mohan puts it, “Our inflation is still high by world standards, and it needs to be brought down further.” Kim Eng Tan (Credit Analyst, Standard & Poors) puts forth his views, “As economic growth slows and inflation rates stay relatively high in 2008, Asia’s central banks will face a policy dilemma.”
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
at a staggering pace (the coefficient of variation, which measures volatility, rose to 15 from 9.7 during the same period). If you add to this the popular perception that this year’s Budget, being the last one for the current regime before the general election in 2009, would be generally populist, you have the mother of all gorillas. So, while it is difficult to predict the short-term behaviour of the market, experts still believe that over the next 12 months, the Sensex would be trading about 15-20% higher than the current levels of 17,000-18,000, which should be in-line with India Inc.’s earnings growth. Affirms Hitesh Agrawal, Head, Research, Angel Broking to B&E, “The Sensex is trading currently at 14-15X the FY 2010 expected earnings of its constituent companies, which is reasonable considering our expected 8-9% GDP growth.”As such, industry experts seem optimistic about the long-term growth of the market. “With estimated GDP growth at around 9%, and inflation contained within 5%, there is little doubt about the future of the Indian bourses. Over a long term of 4-5 years, a Sensex of 50,000 is also possible. We believe that Sensex could scale the 25,000 mark in FY 2009,” says an optimistic Chakraborty of Religare.
But then, there are reports from Goldman Sachs that have maintained an underweight on India. Goldman Sachs estimates valuation support at 15X P/E – a 20% downside or a range-bound market by end-2008. And there are many who feel that the Sensex would hover between a band, without any major gain or fall. (These were the same experts who had correctly predicted when the Sensex was over 21,000 points that a deep correction could force the index down to 16,000. And which happened.)
However, one obvious question still lags. What about the future of forthcoming IPOs, after the post-listing price debacle witnessed in the case of Reliance Power, and two companies pulling out their IPOs because of a lack of investors’ response? Would the recently-concluded and hugely-successful IPO of Rural Electrification Corporation hold water on listing? “As investors become risk averse, the fundamental valuation will become the basis of subscription. As long as the IPO pricing is justified, we believe that IPOs will be subscribed,” says Religare’s Chakraborty. “The participants now need to work more on their pricing strategy,” adds Ajay Parmar, Head, Research, Emkay Shares. One upside to the crash has been that the attractiveness of many stocks, which declined in the recent past, has increased. But from here onwards, would fundamentals, and not sentiments, drive the market? Market experts feel that investors should only do two things now – ‘Pray hard, and hope for the best!’
Interest(ing) times
For policy practitioners, the question concerning growth and its relationship with interest rate and inflation has always been of interest. As per the analysis of A. Vasudevan (former Executive Director, RBI), growth and interest rates are negatively related, which is statistically significant, whereas growth and inflation are positively related, but statistically insignificantly. If the GDP projections are anything to go by (8-9% for the coming year), it is apparent that India is facing the prospect of a slowdown, or slower growth in the coming fiscal. Inflation, currently pegged at 4.07%, much in the comfort zone of RBI, is still high by global standards. As the RBI Deputy Governor, Rakesh Mohan puts it, “Our inflation is still high by world standards, and it needs to be brought down further.” Kim Eng Tan (Credit Analyst, Standard & Poors) puts forth his views, “As economic growth slows and inflation rates stay relatively high in 2008, Asia’s central banks will face a policy dilemma.”
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
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