The Hindu Business Line : Bull run likely to sustain, says expert

WILL this current bull phase in the Indian stock markets continue? If yes, for how long? These are the recurring questions that do the rounds among investors across the country.

The current bull phase in the stock markets started in April 2003 and it has now lasted for more than two years. This has rarely happened before and indications are that it may persist for some more time, according to Mr V. Rajendran, Managing Director, Capstocks and Securities (India) Pvt Ltd.He told Business Line that the Sensex went up from 2,900 in April 2003 to 6,700 in June this year and the Nifty from 920 to 2,100, representing returns of about 130 per cent. The performance of midcap stocks was even more impressive with the NSE Midcap 200 index vaulting from 675 to 3,000, marking returns of around 340 per cent.

Mr Rajendran said that any bull phase in the Indian stock markets over the last 15 years had not lasted for more than one-and-a-half years. But the current bull phase is rooted in strong fundamentals.

During the bull-run in 1992 on the back of the now infamous Harshad Mehta scam, the market P/E ratio reached a high of 52. Again, in the bull phase triggered by the software boom in 2000, the market P/E ratio was at 29 and in the case of some individual software companies, the ratio even exceeded 100.

However, in the present scenario, the market P/E ratio is only around 15 and if one takes into account the projected profits, the ratio will still be lower. Mr Rajendran felt that the Indian market is still undervalued compared to other emerging markets and there is potential for it to appreciate further.

Though some have predicted that the Sensex will reach the 10,000 mark in two years, it can conservatively be put at 8,000. Even then, the market P/E ratio will be at only 18.4, notes Mr Rajendran.

One of the negative factors looming in the horizon is a spurt in oil prices. The crude oil price is now hovering around $55 per barrel and if it hits $100 per barrel within a year as forecast by some experts, it will have a huge impact on the country's economy, which will, in turn, depress the stock markets.

Mr Rajendran sees good growth potential in the construction sector, with spurring demand for materials like cement and steel. Telecom is another area where the flurry of activities in recent months points to better times ahead for players in the field.

While the software sector continues to be upbeat, the oil exploration companies will get a boost, given the rise in international crude prices. Also, the dismantling of the quota regime has opened up greater opportunities for the country in the global market.

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