Bull run: What experts have to say

With the Sensex trading at a trailing price-earnings (P/E) multiple of 16.51, the market is neither expensive nor cheap, according to analysts. Whichever way one looks, stock prices do not look stretched though Sensex changing orbit within such a short span has raised some concerns.

Looking at the earnings multiple at different points in time over the past twelve years, the market looks fairly valued. Post 1993 high, the Sensex P/E has been around 17, pretty much the level at which it is trading now.

The Sensex journey: 1000 to 8000!
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During the Harshad Mehta boom when the Sensex hit a high of (4400), the Sensex P/E was trading 42 times earnings. Similarly, when the index was driven by the tech euphoria, its earnings multiple was around 25.

When the Sensex was at its lowest ebb in May 2003 -- the period which marked the onset of the firly bull rally than still continues with just a couple of intermissions -- its was still trading at trailing 12 month PE of around 12 and forward multiple of less than 10.

Some market experts has been maintaining that the India markets were due for a solid re-rating give the sharp decline in interest rates over the past five years. But despite the high run-up in stock prices, equity markets look undervalued compared with debt.

Earnings yield, which is the inverse of P/E, is currently at 6.06 per cent, lower than the 10-year benchmark bond yields of around 7 per cent. When it comes to emerging market valuations, however, India does not look too cheap. According to certain estimates, Indian markets are close to being overvalued.

For all MSCI Asia ex-Japan, earnings growth for 2005 and 2005 is projected at 10 per cent 13.7 per cent respectively. For India, earnings growth is estimated to grow at around 15 per cent for FY 05.

A Bit Stretched
At 8000, equity valuations are becoming stretched. The market is overheated. But what is overheated can still boil! Till now the huge influx of foreign funds have driven the market rally. Foreign money will still flow in. But that is a sign that market is becoming overheated and will shortly top out. Oil prices are a negative for economies. But US money printing may boost asset prices still higher. Consumer price increases will lead to more inflation, higher interest rates and tightening of liquidity.

--Marc Faber
Investment guru

Be Cautious
We had the fastest run in the market. Though there is no reason to cite for the reversal of the market now, investors should be careful about their investments in equities. There are several corrections to come. This fact should be kept in mind by the new investors coming into the market. There is a lot of liquidity worldwide. India has emerged as an important emerging market in this scenario. In other words, global investors are not in a position to ignore India. But negatives like oil sector will continue to nag the country.

Hemendra Kothari,
Chairman, DSP Merrill Lynch India

Expectations Rising
It seems new investors across different geographic regions seem to have discovered India. The positive sentiment, fundamentals and flood of money have just taken the market up.

May be the markets have run ahead of fundamentals and you see people increasingly buying on Thursday, assuming that FY06 is in the bag and looking out further to FY07. The key thing is to watch out is that people are building in growth expectations. So if the expectations are not met, then the markets could be at risk.

--Sanjiv Duggal,
CIO, HSBC Mutual Fund

Mid-Caps a worry
Caution and 'caveat emptor' are the key words in stock markets regardless of market levels and whether trends are bullish or bearish. We should not forget this at any level, 8000 or otherwise. Sensex 8000 is the recognition of the performance of the Indian economy and the corporate sector as also their prospects.

The market is not overvalued by any standards and has tremendous breadth, but the surge in small-cap stocks has to be taken with a pinch of salt and with a great sense of caution.

--Rakesh Jhunjhunwala
RARE Enterprises

Crude, a negative
The Sensex has crossed another major milestone, heralding the strength of the economy. Flow of domestic and foreign funds will remain strong, but the latter will be in a substantially higher quantum. Corporate performance has added to the liquidity to bring about this jump in the market.

The present trend will continue in corporate performance and the bottomline will be in the range of 15-20 per cent for a few quarters to come. However, one has to watch out negatives such as spiralling global crude prices.

--SA Narayan,
MD (retail), Kotak Securities

Not Justified
The pace at which the market is going up is not linked to the performance of corporate India. In addition, the Centre does not take any mention-worthy steps to reduce fiscal deficit. On the contrary, steps like not letting the oil prices go up only increases the fiscal deficit.

In short, fundamentals do not support the scorching speed at which Sensex is going up. Its now in the public domain that the bull run is caused by huge infusion of foreign fund. And if, foreign funds start leaving, the market will fall like nine pins.

--Sumant Sinha,
CFO of Aditya Birla group