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S&P BSE Sensex up 48% since 52-week low

Equity market investors are a happy lot. From its 52-week low of 18,071 touched on August 29, 2013, the S&P BSE Sensex has rallied 48%, or 8,600 points till date, while the CNX Nifty has moved up 56% or 2,850 points to 7,967.80 from its 52-week low of 5,118.90 touched in August last year.

During this period, the market value of nearly 326 stocks out of 778 stocks that comprise the BSE-500, mid-cap and small-cap indices have more- than-doubled. Another 206 stocks gained between 50-100% during this period. These 778 stocks account around 98% of total market capitalisation of BSE.

Analysts attribute this stellar rise to the hope of a stable government post the general elections that would push for structural reforms and help revive the economy. Foreign institutional investors (FIIs) turned bullish towards the India in this backdrop and invested Rs 130,635 crore ($ 21.4 billion) as per Sebi data during this period. Mutual funds that remained dormant for most part of this duration, too, have also assumed an aggressive stance of late.

“Emerging market (EM) equities have performed better-than-expected. The rebound of EMs was further helped by the fact that much of the impact of tapering by the US Federal Reserve was already seen in the second half of 2013, followed by quick damage-control exercises by the central banks of the ‘Fragile Five’. Politics have also had an important influence in Turkey, Brazil, India and Indonesia,” says Jose Gerardo Morales, chief investment officer, Mirae Asset Global Investments.

“As exemplified by developments in India, the mere prospect of structural reform is a powerful driver of markets, while execution is a requirement for sustainable outperformance,” he adds.

Among individual stocks, TVS Motor Company, Ceat, Avanti Feeds, Eveready Industries, Gati, Granules India, Global Offshore, Ahluwalia Contracts, SRF and JK Lakshmi Cement are among few stocks that have rallied between 400 – 1,600%.

The total investor wealth, measured in terms of market capitalisation of all the listed companies together, rose by 54% to about Rs 92.74-lakh crore as on date, compared to around Rs 60.32-lakh crore in last year.

The road ahead

While the run up has seen a sharp V-shape recovery in the past one year with two out of five traded stocks gaining more than 100%, experts suggest that the markets could now take a breather and consolidate before resuming their next leg of up move, which is likely to driven by earnings growth and roll out of favourable policies.

“Our analysis indicates that over a 15-year period, earnings remain the biggest driver of market performance, not only at the index level but also for sectors. Returns of Indian equities have largely been driven by earnings growth over the past 15 years. In contrast to this long-term trend, this year has witnessed a 27% return of which 19% is due to multiples expansion. While this could be due to raised expectations on the back of change in India’s political leadership, we believe that positive earnings momentum is required to sustain these returns,” says Bhuvnesh Singh of Barclays in a recent India Equity Strategy report co-authored with Vijit Jain and Rachna Biyani.

Besides the growth in earnings, analysts are also keeping a tab on the policy reforms and how quickly the new government can roll them out. This will be key determinant on how investors perceive India as an investment destination, they suggest.

Says Abhay Laijawala, managing director and head of research, Deutsche Equities: “For the first time since the election we are witnessing nascent signs of waning investor momentum for India. Investors have begun expressing concern over the NDA government’s perceived lack of urgency in articulating a time bound gameplan for big bang reform. While we agree that articulation of big bang reform is yet to come, we are seeing an urgent focus on policy execution, particularly focused on clearing stalled projects and in attempting to simplify and streamline government processes.”

Adding: “However, investor patience may be tested if an articulation on big bang reform accompanied with a time bound gameplan is not forthcoming over next few months. We continue to maintain constructive outlook on the Indian market and reiterate December 2014 Sensex target of 28,000.”


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