Sensex @ 60K reflects optimism for the future, not current reality

In a sense, the Sensex – as the sensitive 30-stock index of the Bombay Stock Exchange is commonly known – not only reflects the state of the economy or investors’ expectations for the future, but also the resilience of the economy. his country of origin, Mumbai. India’s most watched index – although the NSE has long surpassed the BSE in terms of size – has always shown eternal optimism for the future and an ability to ignore setbacks or setbacks. current disasters, reflecting the spirit of Mumbai itself. His current rally, which beats the world, is no different.

BSE Sensex broke the 60,000 point mark, propelling the Indian stock market to become the sixth largest stock market in the world, overtaking France in terms of total market capitalization despite a much weaker currency. While the index has been steadily rising over the years, keeping pace with the growth of the Indian economy when it opened, especially after the start of economic reforms, the current sprint has been almost surreal. It took the Sensex over 31 years to climb from 1,000 points to the current high of over 60,000.

The benchmark was only 1,000 points in 1990. It took nearly a quarter of a century to reach the 30,000 mark on March 4, 2015. But it only took six years to double compared to this level. In fact, after suffering a panic-triggered setback in the first few months of 2020 when the Covid pandemic struck, the market experienced an unstoppable bull run, doubling from pandemic lows of 2020 to become the most popular stock index. performing in the world. today, with an undefeated rally for 18 months.

The rally was driven by domestic and foreign money. While foreign funds have injected more than $ 9 billion into Indian stock markets, they have been pushed by millions of new investors flocking to the stock markets in search of higher returns as inflation and rates rise. lows have turned the real yields on bank term deposits, the preferred savings option for a majority of Indians, almost negative in real terms. The lack of an adequate floating stock of good stocks has meant that the prices of good stocks have split at extremely high levels.

Currently, the valuation of the Indian stock market is 1.3 times the GDP of India, which is uncomfortably high. While India has rebounded fairly quickly from the Covid setback, with GDP growth of 20.1 percent for the first quarter of fiscal year 2021-2022, that number needs to be viewed from the perspective of a base low from the previous year, when the economy actually contracted, the median growth forecast for the full year, although falling from double-digit levels to 9.5 percent, this still reflects a history of strong and underlying growth.

However, now is the time for small investors and individuals in particular to exercise caution. All stock markets go through ups and downs, ups and downs. India has been exceptional in the duration of this current rally. However, the average price-to-earnings ratio broke through 27, leaving little room for a rise. A third wave of Covid, or the contagion of real estate in China spreading to other sectors, as well as central banks around the world turning off funds injected to support growth during the pandemic, are all factors requiring attention. close monitoring. Above all, it would be reckless to take the Sensex at 60,000 as a sign that India has come out of the woods on the growth front.

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Posted on: Saturday, September 25, 2021, 2:30 a.m. IST

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