Sensex sees best monthly gains in seven months

Index advances 8 per cent in election-result month

Equity markets buoyed by election euphoria saw the benchmark indices posting gains of about 8 per cent in May, the highest since October last year.

In October last year, the Sensex and the Nifty had gained 9.8 per cent each after the US Federal Reserve’s decision to delay the start of the tapering of its monetary stimulus package – Quantitative Easing 3.

Gains in this month were fuelled by hopes that the election would see a stable government coming to the Centre. As the outcome, declared on May 16, was on expected lines the market received a further boost. Most analysts rushed to re-rate Indian markets following the election outcome. The Indian market now trades at a price-to-earnings (P/E) ratio of about 15 times one-year forward earnings. Some analysts believe the Sensex can trade at an even higher multiple and will hit 28,000 by December-end.

“Re-rating is a matter of perception. As long as the good announcements (by the government) keep coming in, people will be happy to pay a higher price for the market,” said Daljeet Singh Kohli, head (research), IndiaNivesh Securities.

Sectors that would benefit from a revival in the domestic economy such as power, infrastructure and real estate led the rally. Experts say some of the mid- and small-cap companies still offer good value.

“If you look at the recent rally, only those segments have rallied which had participated in the market in a big way in the last two to three years. The markets may not see such a sharp decline as the upmove seen so far has not been irrational,” said Arun Gopalan, vice-president (research), Systematix Shares & Stocks.

The next big trigger for the market, according to participants, would be the Budget to be presented in July. “For the first four-five months of the new government, statements would be enough to move the market. But, after that, actions by the government will have a bigger say on market direction,” said Kohli.