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Sensex’s journey to record high in 5 highlights

LiveMint logoLiveMint 26-04-2017 Ami Shah

BSE’s benchmark equity index—Sensex—recorded a new high of 30,146.54 points on Wednesday, backed by a strong rally in world equities. The 100-point journey from 30,000 points to 30,100 points did take a long time though—784 days to be precise. Currently, even though valuations look rich, there is no deterrent to the rally as liquidity remains abundant and risk is back in vogue. A look at highlights of the index’s journey:

1. The Sensex drove past the milestone 30,000-mark on Wednesday to a record high of 30,146.54 points, mirroring a rally in world equities, on renewed optimism about the growth prospects in the US—the world’s largest economy. It took a long time for the Sensex to get back to its previous closing peak seen on 5 March 2015. The key issues around the previous peak level in 2015 were concerns that the market had run ahead of its then valuations after the National Democratic Alliance’s landslide victory in the general elections in 2014. While the market gathered some steam towards September last year, the optimism soon faltered as the government announced a sudden demonetisation of high-denomination notes in November. The event also coincided with the unexpected win of Donald Trump in the US presidential elections.

2. Sensex’s journey from 30,000 points to 30,100 was a very long one—it took a total of 784 days for the benchmark index to do this. Overstretched valuations and less-than-expected rainfall for two consecutive monsoon in 2014 and 2015 kept the sentiment cautious. While sentiment improved with better rainfall in 2016, the unexpected demonetisation announcements hurt the promising consumption story. The upbeat sentiment in 2017, on the back of strong domestic inflows, and hopes of resumption of the consumption cycle worked in favour of Indian stocks. These, along with strong overseas cues such as improvement in the US economy, and expectations that Emmanuel Macron, the pro-European Union candidate, may win the French presidential election, are helping fuel the rally in world markets right now.

3. The top five gainers in the Sensex pack from the previous peak in 2015 to now are Maruti Suzuki India Ltd, Reliance Industries Ltd, HDFC Bank Ltd, GAIL India Ltd, and Bajaj Auto Ltd. Maruti Suzuki is in the forefront, with robust car sales and rising market share, on the back of new launches. Oil-to-telecom giant Reliance Industries ranked second among gainers, helped by improving refining and petchem margins, and more recently the launch of the telecom business. Pharmaceutical companies such as Sun Pharmaceutical Industries Ltd, Cipla Ltd and Lupin Ltd were the key losers in the same period, due to continuous regulatory hurdles, along with pricing pressures in the US — a market that accounts for at least half of their revenue.

4. Meanwhile, valuations have turned expensive, with Sensex currently trading at 17.51 times fiscal year 2018 earnings, a 18.37% premium to the five-year average of 14.8 times. While liquidity flows may continue to drive up valuations, the investment choices are getting tougher, and bottom-up approach is the best to select value stocks, say wealth managers.

5. Three of the most expensive Sensex stocks are consumption-driven – namely, Asian Paints Ltd, Hindustan Unilever Ltd and ITC Ltd. There are expectations that India’s consumption story – one of the most promising ones globally— will be back on the growth trajectory soon, as impact of demonetisation is waning. This along with the impact of implementation of the recommendations of the Seventh Pay Commission and an expected normal monsoon rainfall are boosting this space.

6. BSE consumer durables index gained the most since 4 March 2015 to now, among the sectoral indices, as investors place their bets on the consumption story in the world’s second-most populous country. BSE oil and gas index and BSE basic materials index also registered strong gains in the period, on the back of a rebound in global oil and metal prices. The BSE IPO index also found its place among top-performing indices, as the primary market flourished with some strong listings such as Avenue Supermarts Ltd. — which more than doubled on listing day.

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