A year after Black Monday, India a preferred pick among investors
The upturn in the domestic market has been solid as index heavyweights such as IT and pharma stocks have yet to turn green, still Sensex could stage a good 8 per cent recovery since Black Monday of 2015.
- Aug 24, 2016,
- Updated Aug 24, 2016 3:36 PM IST
One year is a long time on Dalal Street. Last year, this day i.e. August 24, 2015, Sensex had crashed 1100 points taking lead from a global market rout after a currency war triggered by China led to a panic selloff across globe. The domestic index has, however, recovered all its losses to claw back 8 per cent until now, but it still trails behind other emerging markets (EMs) such as Brazil, Russia and Taiwan which jumped up to 27 per cent till date.
Nonetheless, the numbers sometimes do not say it all. Indian market added gains in single digit only because its price/earnings ratio was already ruling higher.
Experts believe the recent underperformance of domestic markets via-a-vis peers has largely been due to a sharp rebound in those markets, mainly commodity-exporters, from beaten down levels. India did manage to restrict losses in 2015 and is in fact trading at valuations, some analysts believe are stretched. That said, hopes of a rebound in earnings cycle back home have maintained India's attractiveness among foreign and domestic funds alike.
"As far as valuations go, we have seen Nifty50's valuations stretching to 23 odd levels after falling to 18-odd levels in 2015. It means the valuations have jumped over 25 per cent since then," said Mustafa Nadeem, CEO, Epic Research.
Explaining the out-performance of Brazil and Russia, VK Vijayakumar, Chief Investment Strategist, Geojit BNP Paribas said, "the commodity crash had led to a massive selling in commodity exporting countries like Russia and Brazil, which made their stocks extremely cheap with PE ratios touching single digits. Such low valuations led to bargain buying when the markets turned tide."
The upturn in the domestic market, on the other hand, has been solid as index heavyweights such as IT and pharma stocks have yet to turn green, still Sensex could stage a good 8 per cent recovery since Black Monday of 2015.
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"Taiwan, of course, is a different category. Higher growth and earnings prospects are attracting funds to Taiwan," Vijayakumar added.
Abnish Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments, in fact, believes Russian and Brazilian economies are on a declining path and market outperformance there is based on nothing but bottom buying opportunities.
"Russia has been going through geopolitical tension hence showing low base effects, so even a little uptick shows a noteworthy bound, while Brazil is still slogging through its worst downturn," said Sudhansu.
Consequently, it is difficult for these countries to attract foreign investment to spur growth as national treasury is on an explosive trajectory, unlike India where gains have been contributed by the grass root level, even though index heavyweight underperformed, said expert.
India appears to be in sweet spot and is well-placed to offer healthy return going forward given earnings growth can be expected to look up in the second half of this year.
"The robust economic policies and their implementation are the reasons for recovery in the market. The results of companies have started to reflect such trend but still the improvement in earnings have a long way to go and are expected to be much better going forward which will keep India as one of the top FPI destination in the world," said Jimeet Modi, CEO, SAMCO Securities.
One year is a long time on Dalal Street. Last year, this day i.e. August 24, 2015, Sensex had crashed 1100 points taking lead from a global market rout after a currency war triggered by China led to a panic selloff across globe. The domestic index has, however, recovered all its losses to claw back 8 per cent until now, but it still trails behind other emerging markets (EMs) such as Brazil, Russia and Taiwan which jumped up to 27 per cent till date.
Nonetheless, the numbers sometimes do not say it all. Indian market added gains in single digit only because its price/earnings ratio was already ruling higher.
Experts believe the recent underperformance of domestic markets via-a-vis peers has largely been due to a sharp rebound in those markets, mainly commodity-exporters, from beaten down levels. India did manage to restrict losses in 2015 and is in fact trading at valuations, some analysts believe are stretched. That said, hopes of a rebound in earnings cycle back home have maintained India's attractiveness among foreign and domestic funds alike.
"As far as valuations go, we have seen Nifty50's valuations stretching to 23 odd levels after falling to 18-odd levels in 2015. It means the valuations have jumped over 25 per cent since then," said Mustafa Nadeem, CEO, Epic Research.
Explaining the out-performance of Brazil and Russia, VK Vijayakumar, Chief Investment Strategist, Geojit BNP Paribas said, "the commodity crash had led to a massive selling in commodity exporting countries like Russia and Brazil, which made their stocks extremely cheap with PE ratios touching single digits. Such low valuations led to bargain buying when the markets turned tide."
The upturn in the domestic market, on the other hand, has been solid as index heavyweights such as IT and pharma stocks have yet to turn green, still Sensex could stage a good 8 per cent recovery since Black Monday of 2015.
ALSO READ: This stock hit lower circuit for 3rd day in a row, down 42% in three days
"Taiwan, of course, is a different category. Higher growth and earnings prospects are attracting funds to Taiwan," Vijayakumar added.
Abnish Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments, in fact, believes Russian and Brazilian economies are on a declining path and market outperformance there is based on nothing but bottom buying opportunities.
"Russia has been going through geopolitical tension hence showing low base effects, so even a little uptick shows a noteworthy bound, while Brazil is still slogging through its worst downturn," said Sudhansu.
Consequently, it is difficult for these countries to attract foreign investment to spur growth as national treasury is on an explosive trajectory, unlike India where gains have been contributed by the grass root level, even though index heavyweight underperformed, said expert.
India appears to be in sweet spot and is well-placed to offer healthy return going forward given earnings growth can be expected to look up in the second half of this year.
"The robust economic policies and their implementation are the reasons for recovery in the market. The results of companies have started to reflect such trend but still the improvement in earnings have a long way to go and are expected to be much better going forward which will keep India as one of the top FPI destination in the world," said Jimeet Modi, CEO, SAMCO Securities.