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Business News/ Market / Stock-market-news/  Samvat 2070: Sensex logs best gain in five years
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Samvat 2070: Sensex logs best gain in five years

The Hindu calendar year kicks off with hopes of quick action to lift sagging economic growth

The 30-share Sensex jumped 26.1% in Samvat 2070, which started on 3 November 2013, posting its best gain since Samvat 2065. Photo: MintPremium
The 30-share Sensex jumped 26.1% in Samvat 2070, which started on 3 November 2013, posting its best gain since Samvat 2065. Photo: Mint

Mumbai: The BSE Sensex rose the most in five years in the Hindu calendar year Samvat 2070 as investors cheered a change in government that raised hopes of quick action to lift sagging economic growth.

Investors remain upbeat as Samvat 2071 kicks off on Thursday, but the probability of higher interest rates in the US and a slowdown in global economic growth loom as potential risks.

The 30-share Sensex jumped 26.1% in Samvat 2070, which started on 3 November 2013, posting its best gain since Samvat 2065.

The Sensex rose to a record 27,354.99 on 8 September. Currently, it is 2.1% off the record at 26,787.23 points.

“The performance in the current year was a blockbuster one. The mid-cap and small-cap (indices) also posted stellar returns," said Dipen Shah, head of private client group research at Kotak Securities Ltd.

Gains were broad-based during the year, The BSE Mid-cap and BSE Small-cap indices soared 53.4% and 74.5% respectively, while the BSE500 index added 32.2%.

Key indices rose to records in the run-up to and the aftermath of the April-May general election that brought the Bharatiya Janata Party to power, making it the first party in 30 years to win a clear majority in the Lok Sabha on its own.

The Congress bowed out of power after 10 years at the helm, its record tainted by corruption scandals and undermined by the easing of economic growth to sub-5% levels for two years in a row and inability to rein in stubbornly high inflation.

Foreign institutional investors pumped $16.9 billion into Indian equities in Samwat 2070.

“Going ahead, the next year will also be good. Valuations have the potential to rise if we see more reforms from the government and inflation trends down," said Shah, adding that Kotak Securities was betting on infrastructure and cyclical stocks and also had a positive bias towards export-oriented firms.

Six sectoral indices outperformed the benchmark indices. The BSE Capital Goods index led the pack, rising 62.4% in Samvat 2070.

The BSE Consumer Durables index advanced nearly 53% while the BSE Auto, BSE Healthcare, BSE Bankex, and BSE Power indices gained 46.2%, 42.6%, 42% and 28.7%, respectively.

Among Sensex stocks, Maruti Suzuki India Ltd was the top gainer; it rose almost 93% in the period. Axis Bank Ltd gained 73.9%, while Bharat Heavy Electricals Ltd, Larsen and Toubro Ltd and Cipla Ltd gained 67.3%, 58.4% and 49.9%, respectively.

“I think that the macro fundamentals are set to improve, and corporate earnings are also going to get better. Interest rates are seen softening as well," said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services Ltd, commenting on the outlook for the market.

“The new government should be able to revive the languishing economic growth going ahead, and the equities markets may continue the momentum," said Rawal, adding that he expected the Sensex to rise by 15-25% in the next one year.

Last weekend, the Narendra Modi government decided to decontrol diesel prices and put in place a new gas pricing regime, triggering expectations of a stronger economic reform push in the days to come.

India’s economic growth rebounded to 5.7% in the quarter ended June, the fastest pace in two-and-a-half years.

While corporate earnings in the September quarter are not expected to be robust, they are likely to strengthen as economic growth picks up. This expectation has dimmed concerns over the relatively expensive valuation of the Indian markets.

The benchmark Sensex currently is trading at 16.9 times the 1-year forward earnings, 7% higher than its five-year average.

It is trading at a premium of 47% compared with the MSCI Emerging Markets index, which is trading at 11.5 times 1-year forward earnings

“We expect earnings to double over next four years as the economy recovers and operating leverage helps margins recover from the current low point in the cycle," Bank of America Merrill Lynch analysts Jyotivardhan Jaipuria and Anand Kumar wrote in a research note on 21 October.

“While investors may not agree that earnings will be as strong as we forecast, almost all agreed that we should see a sharp rebound in earnings," they wrote.

According to S. Naren, chief investment officer at ICICI Prudential Asset Management Co., the market is now fairly valued, with most sectors trading near their long-term average valuations, clearly discounting the 2014-15 earnings numbers.

“A year ago, there was abundant value in the market but spurts of optimism on the grounds of a stable government having an agenda of strong reforms led the market to perform exceedingly well," said Naren,

According to Naren, there are near-term risks emerging from the global economy and the end of quantitative easing in the US.

“Having mentioned that, one can derive valuation comfort by looking into the future, because therein lies confidence of an economic recovery over the next 3-5 years. In fact, themes like banking, infrastructure and public sector units look attractively valued for the long-run," he added.

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Published: 23 Oct 2014, 12:20 AM IST
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