The Sensex has crossed the 16,000 level for the first time since June 2008. India’s benchmark equity index’s previous tryst with this level was in September 2007. In effect, Indian equities have bounced around a fair bit these past two years—and have eventually arrived at the same place.
Yet, the rise in equity prices these past few months will offer relief to many economic agents—ordinary investors will see some of the damage to their portfolios repaired while companies will be able to use a stronger demand for equities to cut their debt burden and improve their balance sheets.
What now? It takes a lot of arrogance to pretend to be able to forecast where the market will be a year down the line, though that hard reality has never got in the way of various professional soothsayers.
But there is reason to believe that equity values have started running ahead of fundamentals, even as there are growing signs of economic recovery. It’s not a 2007-style bubble for sure. But some caution is warranted.