 "BSE, NSE, STOCK MARKETS")
While headline indices remain around 5 per cent away from record highs, the picture at the level of individual stocks is less reassuring. More than 300 of the BSE 500 constituents are trading 20 per cent or more below their all-time peaks.
The figures highlight how the post-pandemic broad-based rally that lifted Indian equities has stalled over the past 12 months, against a backdrop of slowing earnings growth and escalating trade tensions with the US. The Sensex and the BSE 500 are currently 4.35 per cent and 5.15 per cent, respectively, below the highs scaled a year ago.
Public spending and a surge in consumption following the Covid-19 pandemic had fuelled earnings across a wide range of sectors and powered the market rally.
“After Covid, there was some priming of the economy. The government spent significantly on public capital expenditure, which boosted infrastructure and in turn supported capital goods and industrials. Consumers, with accumulated savings, went on a spending spree -- on goods, services and holidays. The IT boom led to increased hiring and wage inflation, resulting in further spending. The banking system and non-banking financial companies (NBFCs) were also flush with funds to support personal loans and credit card spending,” said Pramod Gubbi, co-founder of Marcellus Investment Managers.
The past year, however, has been marked by an earnings slowdown, which rendered elevated valuations harder to justify. Trade frictions with the US, culminating in tariffs of 50 per cent on Indian goods, have kept markets unsettled.
“Ultimately, the market is forward-looking. It operates on the hope that earnings growth will materialise. That growth depends on the economic environment. The government cannot pump-prime the economy indefinitely. It had to consolidate fiscally, while consumers, after a phase of excess, have tightened their purse strings. We have also seen a slowdown in job creation, as well as challenges linked to automation and AI,” said Gubbi.
The weakening earnings trend has also prompted investors to flock to companies able to deliver even modest growth. “People are just overpaying for growth at this point. Many mid-sized and small companies are struggling with heightened competition, margin pressures and business model disruptions, with revenues and profits either flat or declining. The Street still chases growth. Even if you are growing at 10-15 per cent, investors are willing to attach a high price-to-earnings multiple,” said Deepak Jasani, former head of retail research at HDFC Securities.
Whether the rally broadens again will hinge on how effectively the recent cut in goods and services tax stimulates demand.
“The next 30 days will give a better sense of how strong the consumption boost is. The question is whether that will encourage the private sector to announce new capacity additions. We may be one or two quarters away from that. The September quarter results should provide clues, particularly from management commentary and forward-looking statements,” added Gubbi.
