| The Rising Market
For the past
(FY2004-10), Indian equity market has been one of the best performing
markets in the world. From the Chart 1, we can see that the benchmark
BSE SENSEX has led the stock market rally and given compounded returns
during these 6 financial years. This financial year alone (as at 12
2010), the equity market is up by 15.26%, with the SENSEX currently
20203.3, just 669 points away from all-time high of 20,873 points which
earlier scaled on 8 January 2008. In fact, the bell weather index is on
for the past two months delivering 12.32% return. To put these returns
perspective, the Year to Date (YTD) return of SENSEX (as at 12 October
has been 15.68%.
In this article,
take a look into the future to see if the Indian equity market still
left to generate returns.
prices in the long run is Earnings per Share (EPS) of a company.
prices may deviate in the short run from their earnings trend, in the
however, the prices follow the earnings integer. In this context, the
of the companies in SENSEX had grown at a compounded rate of 17.08%
FY2002-08, which was followed by a bull-run wherein, the index moved
to 3500 points to over 20,000 points as seen in Chart 2.
estimate gathered from Bloomberg (Chart 3), companies in SENSEX are back
to the high earnings growth stage, and
are expected to touch all-time high in the next two financial years.
based on the growth in the earnings, we have estimated SENSEX to cross
points by March 2013.
can expect market to cross 23,500 levels earlier than
March 2013, if Foreign Institutional Investors (FIIs) continue to be
India. Even the FIIs are chasing the earnings growth of Indian
are continuing to invest huge sums of money into India. This is evident
the huge inflows into the Indian markets. As at 11 October 2010, the
pumped in US$21.7 billion, the highest inflows into India ever.
from FII flows, India has been receiving a steady
stream of investments in the form of Foreign Direct Investments (FDI).
According to Department of Industrial Policy & Promotion, from
to June 2010, over US$170 billion has been invested into India through
route, in comparison to FII equity investment of US$68.5 billion in the
Indian Companies to grow fast
(FY2011-2020), we are sure that Indian economy will get into sustained
growth trajectory which can lead to higher growth in
reasons to be
upbeat about India’s economic growth; the important ones are
five year plan (2007-12) had estimated that over US$1 trillion is
expected to be invested in the infrastructure sector in 12th
Year Plan (2012-2017). Most of these investments will be in public
infrastructure space like power, ports, airports, roads, railways, etc.
will benefit not only Indian companies in terms of higher revenues and
but also for global companies on account of technology transfer fees.
comparison of SENSEX with Major Global
between SENSEX and
EPS of SENSEX
of EPS of SENSEX for the next 3