Sensex defies gravity, climbs Mt 60,000 in quick time
The BSE Sensex cracked a new lifetime peak of 60,000 on Friday. It took merely 167 trading sessions to leap from 50,000 points to 60,000—the fastest pace ever for a 10,000-point move. Its peer index Nifty too came tantalisingly close to the 18,000-level, but held forth its exuberance for another day. Having crossed new thresholds of statistical significance twice this year, experts believe that Sensex’s fortunes from 60,000 to 1 lakh is only two-three years away.
The ongoing market rally also comes just 18 months after the March 2020 carnage, when a vulnerable Sensex crashed down to the 25,000 level as the Covid-19 pandemic wrecked lives and livelihood. Notwithstanding the human and economic misery, investors have found a fresh wind, placing their bets on the underlying strength of Asia’s third-largest economy.
Among emerging markets, India has been one of the best return-yielding markets. Easy liquidity, increased domestic inflows and reforms are moving the 30-stock benchmark index towards fresh milestones, even overlooking concerns of an earlier-than-expected US Fed tapering, a possible rate hike and hardening of bond yields. Instead, Indian indices have a single-minded focus on improving corporate earnings, the mass vaccination drive and anticipated rise in private consumption led by the upcoming festive season. But the market boom seldom lasts sans a durable real sector.
Currently, the Sensex is driven by improved FY21 earnings, which in turn was influenced by lower taxes, interest costs and expenses. The FY22 outlook appears bright on the anticipated rise in consumer demand, but retaining the pace of growth is critical. The price earnings ratio, the barometer used for measuring valuations, is at the highest level, exceeding 20, which no market rally can ever sustain. It means a correction is coming, but whether it’s a fire or ice moment is unclear. Typically, a fall of at least 20% from a recent peak is considered as a bear market (ice), while a 10% fall defines a correction (fire). Given the high valuations, intermittent volatility is unavoidable and retail investors who began trading as a lucrative side hustle post-Covid must exercise caution.