The Sensex broke through the 60,000 mark on Friday as investors shrugged off concerns of central bankers pulling out of their accommodative stance and continued to bet on the recovery of the Indian economy. Both benchmarks ended the session at record highs undeterred by the possibility of a sharp slowdown in China or more modest bond purchases by central banks, raising interest rates in some markets emerging.
Investors seem ready to take risks even though India is now a very expensive market. The Nifty50 is currently trading at a price / earnings multiple (PE) of 22.6 times its expected one-year earnings, according to Bloomberg. That’s a 24% premium over the five-year average, compared to 13.9 times for Taiwan’s Taiex and 11.1 times for Korea’s Kospi. The Jakarta Composite is trading at 15.40 times, the Bovespa at a multiple of 8.2 times, according to Bloomberg data.
Strategists do not see a major shift in the short to medium term drivers of the market. “We expect a strong economic and earnings recovery and a stable situation from Covid-19 to support the market in the near term. We see no change in India’s medium-term narratives, including favorable demographics and a likely multi-year investment cycle driven by corporate and household capital spending, ”Sanjeev wrote earlier this week. Prasad from Kotak Institutional Equities.
While Domestic Institutional Investors (DII) have bought stocks worth $ 1 billion in the past four sessions, Foreign Portfolio Investors (REITs) have invested nearly $ 9 billion in Indian stocks up to ‘now this year on the back of a whopping $ 23.4 billion in 2020.
Some markets have seen exits this year such as South Korea from where $ 25.1 billion was withdrawn, Taiwan which reported exits of $ 15 billion and Vietnam from which nearly $ 2 billion was been withdrawn between January and now.
While the Sensex closed at 163.11 points, or 0.27% higher at 60,048.47, the wider Nifty50 stood at 17,853.20 points, up 30.25 points. The Sensex has gained 25.8% so far in 2021 – thanks to returns of 15.8% in 2020 and 14.4% in 2019 – Infosys and Reliance Industries contributing more than a quarter of the gain. Shares of Bajaj Finserv, the top performer on Sensex, doubled in 2021 while Tata Steel stock is up 97.6%.
“The increase in REIT inflows to India to the tune of $ 38 billion since April last year suggests that foreign investors remain confident in the diverse world of Indian companies with its many opportunities,” said Aashish Somaiyaa, CEO of White Oak Capital.
While it took 609 days for the previous 10,000 point rally, the last one only took 246 days. In addition, the time taken by the Sensex to gain the last 5,000 points was only 42 days (against 204 days for the previous 5,000 points). Meanwhile, UBS’s wealth management arm has downgraded Indian stocks and revalued Taiwanese stocks in its model portfolio. According to UBS, “the country’s rapid recovery in macroeconomics and earnings is largely embedded in the very rich valuation of the market.