| The Sensex set a searing pace this year shooting from 10,000 in Feb 06 to 14,000 points on Dec 06 after touching a low of 8,800 points in May. The markets peaked such heights primarily due to robust inflow from market players reflecting their confidence in Indian economy and strong economic data. There is increasing recognition of long-term growth prospects. The markets seem to have come of age with IT, banking and infrastructure sectors recording a healthy growth rate, which is being reflected in the stock market performance. Sensex latest milestone to 14,000 points has been smooth. Sensex steadily rose touched another 1K level in just 26 trading sessions. Markets seem to have fully recovered from their pitfall in May, keeping faith in the Indian growth story and strong fundamentals of Indian companies intact. | | | FIIs and mutual funds have played a major role in keeping the markets buoyant. This fact is supported by increase in number of registered FIIs since April 20 i.e. 10K level. There were 898 registered FIIs on the said date. This figure increased to 993 as on December 5. The total investment by FIIs in Indian equity market has increased by 11.5% to Rs.2.14 lakh crores. Foreign institutional investor's faith in Indian economy is confirmed by fund infusion in the markets. FIIs have been net buyers every month in 2006, except in the month of May. | Sensex is conquering new heights. The market capitalization of BSE has crossed the country's GDP. The total listed market cap touched around Rs.34 lakh crores, almost Rs.2 lakh crores more than the GDP figure of around Rs.32 lakh crores during the financial year 2006. India has become the first BRIC country where the market cap of the companies listed on the stock exchange exceeds the GDP of the country. This signals that the markets are estimating very high economic growth for the future and the current market valuations are capturing the projected GDP growth India now joins an exclusive club of developed markets, including the US and the UK, along with a few emerging economies such as South Africa, Malaysia and Singapore. | Sensex Milestones : | Sensex level | Date | Sensex Drivers | | 1000 | July 25, 1990 | Good monsoon and excellent corporate results. | | 2000 | January 3, 1992 | Liberal economic policy initiatives undertaken by the then finance Minister, Dr Manmohan Singh. | | 3000 | February 29, 1992 | Market-friendly Budget by the then Finance Minister, Dr Manmohan Singh. | | 4000 | March 30, 1992 | Liberal export-import policy. | | 5000 | October 8, 1999 | BJP-led coalition won the majority. | | 6000 | February 11, 2000 | Infotech boom | | 7000 | June 20, 2005 | News of the settlement between the Ambani brothers boosted investor sentiments | | 8000 | September 8, 2005 | Buying by foreign and domestic funds | | 9000 | November 28, 2005 | FIIs on buying Spree. | | 10000 | February 6, 2006 | Buying from FIIs, Local operators and retail investors | | 11000 | March 21, 2006 | Robust foreign fund inflows and a move by Government towards greater capital account convertibility. | | 12000 | Apr 20, 2006 | Massive buying from mutual funds around Rs.3400 crore in just 19 trading sessions, favorable credit policy. expectation of robust fourth quarter earnings by corporates and S&P upgrading India's sovereign credit rating from stable to positive | | 13000 | Oct 30, 2006 | Fund infusion from market players, falling oil prices and strong second quarter results from Technology and Banking companies. Robust growth in infrastructure sector. | | 14000 | Dec 5, 2006 | Strong FII inflow, healthy corporate earnings and continued strong economic data coupled with slash in petrol and diesel prices have fuelled the latest surge on the bourses. | | - Sensex @ 14K; another feather in Equity market's cap.
- India is first BRIC country where market capitalization exceeds GDP.
- GDP for Q2 FY07 stands at 9.2%.
- Slash in petrol and diesel prices support the rally.
- FIIs pump in Rs.7,669 crore in 26 trading sessions.
- Investors to exercise caution and keep long-term horizon on their investments.
Source: Economic Survey Report 2005-06 
Mutual Fund Inflow for Different Milestones (Rs. in Crore) 
Source: SEBI websiteFII inflow for different Milestones
Source: SEBI website Sensex Closing Values and PE
| The Boosters :
India Inc's growth story Indian growth story is being talked world over. Investors are optimistic on the future growth of the Country. Central government's revenue receipts increased by 31.4% though the rise was not enough to cover the increase in the expenditure, both plan and non-plan. Buoyant revenue collection by government has boosted the projection of achieving a lower fiscal deficit than that estimated in Budget 2006-07. Finance Minister P Chidambaram recently said the target of keeping fiscal and revenue deficits at 3.8% and 2.1% of the GDP, respectively, would be met. With gross fiscal deficit of the country contained at 58.2% of the projected and inflation contained between 5%-5.5%, forex reserves swelling to USD 172 billion, India continues to be an attractive destination for the foreign investors. India has witnessed three consecutive years of high growth. The Indian economy has continued to sustain its growth momentum with the first and second quarter growth in the current year being a robust 8.9% and 9.2%. The RBI had revised an overall GDP growth of 8% for 2006-07 up from 7.5% - 8% in its mid term review of credit policy. Even if GDP grows @ 8% for Q3 and Q4, the GDP for FY07 will exceed 8.5%. There have been signs of industrial resurgence. Industrial growth has been both broad-based and generally balanced. The index of industrial production has increased by 10.9% during April – September 2006. The growth indices of industrial production for the mining, manufacturing and electricity sectors during April-September 2006-07 over the corresponding period of 2005-06 has been 3.1%, 12.1% and 6.6% respectively. The Mutual Funds : The markets saw increased buying from the mutual funds because of huge money mobilized through launch of new equity schemes. FY06 witnessed massive growth in inflows in equity market from Mutual Funds to Rs.10,581.59 crore from mere Rs.448 crore in FY05 (23 fold increase in the inflows). Mutual funds are mopping up investments from the market, with rejuvenated interest from retails investors. The household investments in mutual funds and stocks have increased from 1% to about 5% over the past year. Asset management companies have also become aggressive in marketing their various mutual fund products and are trying to tap every unexplored market. These are increasingly looking at joining hands with co-operative banks as part of their attempts to push the product sales in smaller towns and rural areas. India's rapidly growing MF industry now manages a little over Rs.3,00,000 crore between 30-odd asset management companies. The FIIs : The rise in market values of the Indian shares by more than double has been attributed to the persistent buying by foreign institutional investors. FIIs interest in Indian equities is reflected in the adjoining graph. The surging index signals that the growth story of Asia's fourth largest economy is intact and liquidity flows into the bourses would continue to remain. FII net investment in the India equity market in the FY06 is Rs.19,984.1 crore. India is now witnessing fresh inflow of funds from new markets like Australia and Europe. This has led to the buoyancy. Large portion of the FII inflows come in broadly through four categories. The first comes through India-dedicated funds. The second category of investments comes in as part of the allocation to India from emerging market funds. The third segment of inflow is through the hedge funds. And the fourth category includes long-term pension funds such as Fidelity. Outlook : The Sensex has given a return of almost 58% since December 2005 and the PE multiples have moved from 17 times to 23 times since than. Markets have been characterized by higher money flows from domestic and foreign investors, which have pushed the markets to new highs.
There is immense growth potential for Indian economy. Sectors like infrastructure, automobile and banking are on a growth drive. With government increasing its spending on infrastructure for the development, this sector is a promising avenue for investments.
Mutual Funds and FIIs are expected to continue pumping in funds in Indian Financial System bestowing confidence in returns from long-term investments.
As an investor one must get cautious of the market and avoid playing impatient short-term bets, instead a more patient and long-term view is advisable. Since secular growth trend in the market is not sustainable, hence one must balance their fear and greed and adopt a bottom up approach for stocks. Markets are expected to reflect steady uptrend with the third quarter results on the cards. Positive results are projected to flow from Banking, Cement, and Textile sectors. | |
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