In a sense, the Sensex – as the Bombay Stock Exchange’s bellwether 30-share Sensitive Index is popularly known – is not just reflective of the state of the economy or investors’ expectations of the future but of the resilience of its home, Mumbai. India’s most watched Index – although the NSE has long overtaken the BSE in terms of size – has always displayed a sense of eternal optimism for the future, and an ability to shrug off current setbacks or disasters, which mirrors the spirit of Mumbai itself. Its current, world-beating rally is no different.
The BSE Sensex crossed the 60,000-point mark, powering the Indian stock market into the becoming the world’s sixth-biggest stock market, overtaking France in total market capitalisation despite a much weaker currency. While the index has logged a steady rise over the years, marching in lockstep with the growing Indian economy as it opened up, particularly after the onset of economic reforms, the current sprint has been almost surreal. It took over 31 years for the Sensex to climb from 1,000 points to the current high of over 60,000.
The benchmark index was at a mere 1,000 points in 1990. It took nearly a quarter of a century to touch the 30,000-mark on March 4, 2015. But it took a mere six years to double from that level. In fact, after suffering a panic-induced setback in the first few months of 2020 when the Covid pandemic hit, the market has been on an unstoppable bull run, doubling from the pandemic lows of 2020 to becoming the best performing equity index in the world today, with an unbeaten 18-month rally.
The rally has been driven by both domestic and foreign money. While foreign funds have poured more than $9 billion into the Indian stock markets, it has been further pushed by millions of new investors flooding into the equity markets in search of higher returns, as inflation and low rates turned real returns on bank term deposits, the favoured savings option for a majority Indians, nearly negative in real terms. Lack of adequate floating stock of good shares has meant that the prices of good stocks have shared to extremely high levels.
Currently, the Indian stock market’s valuation is 1.3 times India’s GDP, which is uncomfortably high. While India has rebounded fairly quickly from the Covid setback, with GDP growth of 20.1 per cent for the first quarter of FY2021-22, this number must be viewed in perspective of a low base of the previous year, when the economy actually shrank, the median growth expectations for the full financial year, while down from the double-digit levels to 9.5 per cent, it still reflects a strong, underlying growth story.
However, this is a time for small and retail investors in particular to tread with caution. All equity markets are about ups and downs, bull and bear runs. India has been exceptional in the length of this current rally. However, the average price to earnings ratio has crossed 27, leaving little room for an upside. A third wave of Covid, or China’s real estate contagion spreading to other sectors, as well as the world’s central banks turning off the tap for funds pumped in to support growth during the pandemic, are all factors needing close watch. Above all, it would be foolhardy to take the Sensex at 60,000 as a sign that India is out of the woods on the growth front.
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