The BSE Sensex at 30,000!
May 4, 2017 . 388 views
Yes, the Sensex may be just on its way up from here!
This isn’t the first time that the market, i.e. the BSE Sensex, touched the 30,000 levels. It has had its brush with the same level back in February 2015. However, things turned out differently then. The market wasn’t able to sustain at that level and was quick to move down to sub 24,000. Experts say that this could be blamed on various macro-economic factors that weren’t in its favour at that point of time. Things are different now.
Now that the Sensex is back to 30,000, what can you expect?
According to Pankaj Pandey, Head of Research at ICICI Direct, the coveted level of 30,000 was driven by the anticipation of strong economic and earnings growth going ahead. He is of the opinion that the Indian economy is on a strong footing, backed by lower inflation and low interest rate regime, as well as, a major reform such as GST, to name a few. The effect of demonetisation has also faded. Currency is back in circulation, trade data is looking better and companies are also showing positive signs of revenues and profits.
But is the market expensive?
Surely at 30,000 you may think that the market may be expensive, considering it is at the highest level it’s ever been. But remember, investors typically assign a price to earnings multiple to the market, which is a ratio for valuing any company or the market overall. It measures the current share price relative to the per share earnings, i.e. share price/earnings per share x 100. Historically, the market has traded in the range of 16 to 17 times its expected earnings. Going by this number, the market is pretty much trading at a similar level right now. The only difference being that there is an expectation of a better earnings growth. Hence, the market could return good double digits going forward. Hemant Kanawala, Head – Equity at Kotak Mahindra Old Mutual Life Insurance, is of the opinion that valuations are still in line with long term average. “Looking at growth potential of Indian economy, investors can continue to invest in equities with a 3 to 5 year view”, he adds.
Should you invest now?
Equity markets have known to deliver the best returns over a longer period of time, i.e. 10 to 15 years, over other asset classes like debt and gold. But always remember that they are highly volatile. They are impacted by domestic fundamentals, global business sentiments, geopolitical situations, foreign investment, as well as, investor sentiments. Hence, it is always advisable to invest via a Systematic Investment Plan (SIP), into diversified equity mutual funds, which will help you to maintain a staggered and regular investment approach.
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