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Paul Noronha

Regains confidence: Despite witnessing heightened volatility, particularly during later part of the year, the BSE Sensex was able to recover to the psychological level of 20,000-mark on the back of institutions buying. –

As we prognosticated, Dalal Street raised the benchmark index above the crucial 20,000 mark close to its all-time high indeed in the last week of 2007. Even as the Sensex P/E raced to 27.5, one of the highest among all major markets, the FIIs dropped their reservations over its over-valuation and pressed buy buttons in the last three sessions of the past week.

The short-term outlook for the Indian equity market seems to be bullish as many of the players are likely to join the catch-up game in the next few weeks.

2007, the fourth booming year in succession, placed Indian market firmly in the top bracket in terms of depth and the contribution of institutional trading moved up to 26 per cent from 23 per cent last calendar year. This underlined the qualitative change, underway on Dalal Street. Trading volumes jumped by over 65 per cent and institutional volume soared more than 80 per cent against that in 2006.

The number of equity issues, fund raising through debt instruments, corporate capital expenditure and acquisitions rose dramatically this year. Towards the end of the year, the mid-and small-caps reclaimed the limelight. From less than $6.5 billion financed via the capital markets just five years ago, Indian corporates have raised about $30 billion in year 2007, according to the Reserve Bank of India data.

India’s relative out-performance among the emerging markets also came out clearly in the last three months. The best sectors, which underwent market re-rating, were utilities, energy, infrastructure and industrials.

According to Morgan Stanley, there was distinct improvement (up 38 per cent over 2006) in the net earnings for the corporates tracked by it. Earnings were helped by margin expansion and strong net financial income. Earnings revisions stayed strong as in the previous three years, with the F2009 consensus EPS estimate for the BSE Sensex constituents rising about 10 per cent from the start of 2007, it said in a recent report.

Analysts and economists certainly have mixed views, but most do not predict repeat of the same level of bullishness in 2008. A few even think that the market could suffer a significant correction in the next February.

Some analysts expect that infrastructure and the related asset class of property would be the big themes of 2008.

But not everyone is gung ho about India. Standard & Poor’s, which is neutral on the Indian market, feels that high oil prices and relatively rich valuations may hinder growth drivers in India where energy consumption has grown rapidly.

The rating agency said that measures taken by the Reserve Bank of India are expected to slow down the country’s economic growth marginally in 2008, with real GDP growth forecast at about 8.1-8.6 per cent against 8.5-9.0 per cent in 2007.

The moderation, according to it , reflects a soft landing, taking the Indian economy closer to its current trend growth rate, estimated at 8.5 per cent. S&P said the Indian companies, in general, would not be adversely impacted by a potential contagion in global and regional credit markets as strong domestic and export demand continues in line with expectations.

It also felt that additional foreign inflows might be muted owing to recent government moves to limit foreign fund inflows via offshore derivatives; but believed that the market is at a comfortable point with corporate earnings growth to support further upside in 2008.

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