Benchmark indices scale record highs: India still the flavour of the season

The Jakarta Composite trades at 15.40 times, the Bovespa trades at a multiple of 8.2 times, Bloomberg data shows.

By Yoosef KP

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The Sensex on Friday soared past the 60,000 mark as investors shrugged aside concerns of central bankers withdrawing from their accommodative stance and continued to bet on the revival in the Indian economy. Both benchmark indices closed the session at record highs undeterred by the possibility of a sharp slowdown in China or of smaller bond purchases by central banks, rising interest rates in some EMs.

Investors appear to be willing to take on risk even though India is now a very expensive market. The Nifty50 currently trades at a price-earnings (PE) multiple of 22.6 times its estimated one-year forward earnings, according to Bloomberg. That’s a 24% premium over the five-year average and compares with 13.9 times for Taiwan’s Taiex and 11.1 times for Korea’s Kospi. The Jakarta Composite trades at 15.40 times, the Bovespa trades at a multiple of 8.2 times, Bloomberg data shows.

Strategists do not see any major change in the short and medium -term drivers of the market. “We expect a strong economic and earnings revival and a stable Covid-19 situation to provide short-term support to the market. We do not see any change to India’s medium-term narratives including favorable demographics and likely multi-year investment cycle led by corporate and household capital expenditure,” Sanjeev Prasad at Kotak Institutional Equities had written earlier this week.

While domestic Institutional investors (DIIs) have bought shares worth $one billion worth in the last four sessions, foreign portfolio investors (FPIs) have invested nearly $9 billion in Indian equities so far this year on the back of a chunky $23.4 billion in 2020. Some markets have witnessed outflows this year like South Korea from where $25.1 bn has moved out, Taiwan which has reported outflows of $15 bn and Vietnam from where close to $2 bn has been pulled out between January and now.

While the Sensex closed 163.11 points or 0.27% higher at 60,048.47, the broader Nifty50 settled at 17,853.20 points, up 30.25 points. The Sensex has gained 25.8% so far in 2021 —on the back of returns of15.8% in 2020 and 14.4% in 2019—with Infosys and Reliance Industries contributing over a fourth of the gain. Shares of Bajaj Finserv, the best performer on Sensex have doubled in 2021 while the Tata Steel stock is up by a whopping 97.6%.

“The surge of FPI inflows to the tune of $ 38bn into India since April last year suggests foreign investors remain confident about India’s diverse corporate universe with its many opportunities,” Aashish Somaiyaa, CEO, White Oak Capital said.

While it took 609 days for the previous 10,000 points rally, the latest one took just 246 days. Also, the time taken for the Sensex to gain the last 5,000 points was just 42 days (vs 204 days for the previous 5,000 points). Meanwhile, UBS’s wealth-management arm has downgraded Indian equities and upgraded Taiwan stocks in its model portfolio. According to UBS “the country’s fast macro and earnings recoveries are largely priced into the market’s very rich valuation.”