Amid all the gloomy predictions, the market has surprised with a sharp rally in the past few trading sessions.
Posting its longest winning streak since early February, the benchmark Sensex has jumped 900 points or 5.72 per cent from the June 4 intra-day low of 15,748.98 to 16,649.05. The gains in the Indian market have mirrored global markets, which have rallied on hopes of further stimulus measures to revive economic growth.
Expectations among investors that European officials and the central bank would spring into action to tackle the region’s debt crisis have led to a sharp rally in risky assets. In India, investors are now hoping for a 25-basis point cut in policy rates on June 18 as a sharp decline in crude oil prices has given more elbow room to the central bank for further easing. The government’s initiative to push infrastructure projects has also boosted the sentiment.
Opinion is divided if the rally would be sustained but experts believe valuations are reasonable and investors can start accumulating shares. “Time teaches us the most money is made on stocks not when the macroeconomic situation is great or the conviction in profit growth is high but when equity valuations are inexpensive,” said Ridham Desai, strategist and head of India equity research at Morgan Stanley.(Click here for charts)
“With the one-year forward price-to-earnings (PE) multiple at about 11, the markets are looking attractive. Historically, markets have gained sharply from such low PE levels. As the domestic situation is bad, we were overreacting to European problems,” said
G Chokkalingam, executive director and chief investment officer at Centrum Wealth Management.
The 30-share Sensex on Thursday gained 1.2 per cent to end at 16,649.05, while the Nifty rose 1.05 per cent to close at 5,049.65, its highest level since May 7.
In a surprise move, China slashed its benchmark interest rates 25 basis points for the first time since 2008 to boost economic growth. The news, which came after the Indian markets had closed, saw most global markets gaining and the euro rising above 1.26 to the dollar.
Anand Shah, CIO, BNP Paribas Mutual Fund, said, “Given the global issues, it is difficult to say if markets have bottomed out. But, I can say with reasonable confidence we are close to the bottom and the markets are poised for strong returns over three-five years.” The markets had dropped 13 per cent from their February highs due to a worsening macroeconomic situation, policy inaction and a weak global environment.
However, with Brent crude prices declining 15 per cent since May and the rupee regaining some of the lost ground, things are beginning to look better. Morgan Stanley believes though India’s macroeconomic situation is fragile and there is low conviction in the growth of corporate profitability, the Sensex could touch 20,000 by December.