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Sensex at Sixty, is there more steam left? By: Saurav Motiramani (H.R. College of Commerce and Economics, Mumbai)
As the Indian Markets continue to climb new highs, a lot of us keep hearing this statement 'Market kitna badh gaya hai, Bohot overvalue ho gaya hai. Ab girna chahiye' which basically means: The markets have run up too much and have become overvalued, it should now witness a crash or a correction Well, let's analyze the markets and see if they're right? Fundamental Factors ● Nifty's earnings per share (or EPS) was ~Rs 430 in Jan 2020 before the COVID crash. In the same month, Nifty's price was approximately Rs 12500 ● As of today, Nifty's EPS has grown to almost Rs 650 - a surge of nearly 51% since Jan 2020 ● Is it any wonder then that Nifty's price over the same period has also grown by nearly 40% from 12500 in Jan 2020 to 17600 today? But you may argue that the economy is still struggling to stand back. Then how has market risen so sharply? Now, let us look at some of the major reasons why the market has been doing well and may continue to do well, in my opinion, in the coming times: ● During the pandemic, a lot of small unorganized businesses struggled to stay afloat even as large, organized businesses garnered their market share. In other words, large businesses likely benefited at the cost of small ones, thus boosting their earnings, and becoming even larger ● Another reason is the commodity price inflation, which benefited metal as well as oil and gas sector companies in Nifty 50 and the increasing demand for technology transformation globally, which benefited the Indian IT sector The pharma companies in Nifty, of course, faced tailwinds because of the pandemic. ● Moreover, with the availability of low-cost credit and the anti-China movement becoming bigger, the domestic companies are looking to create more import substitutes and have huge capex plans lined up for the next few years. ● The emerging markets, especially India, is expected to outperform the developed markets in the coming times and it is here when one should invest rather than looking at the global markets and getting worried. ● The availability of low-cost credit and increased capex with import substitution becoming the focus of the domestic companies, the outlook for some of the industries looks extremely positive.
