The Hindu Business Line : Dalal Street in a rosy garden

Dalal Street never had so good the universe around. The oil is soft; inflation and interest rates benign; the growth horizon expanding; politics is manageably chaotic; earnings are unmatched; currency risk is muted; investors are pouring in; and to top it all there is no scam in the air.

India is cheaper than in 1992 and 2000. It's difficult to beat.

Inheritance of loss

The benchmark index is not cheap, definitely dearer than rest of the emerging markets. So? Only armatures would jump to the hasty conclusion that money would flow out of Indian equities.

What determines the relative valuation? India is 18 PE. Arguments run like this that the global investors would now look for cheaper bets, maybe 16, 15 or 10 PE markets. But the investment strategies for professionals have never been so simplistic in reality.

What brought investments to India? Compared to risks, the return prospects for next 10 years for Indian stocks were reckoned as unmatched among the developed and emerging markets.

GDP growth - still at 8 per cent going to be 9 per cent - is the perception of the serious international investors.

Then why local experts are hesitant? Ghosts of Harshad and Ketan still stalk the market mind.

Un-manipulated stock indices averaged the progression of every market economy. At the same time, all the markets have been manipulated one time or the other. Undoubtedly, the India market had is share of frauds - quite a number of them still unresolved.

But that will not stop buzz on the Dalal Street, doubting Thomas notwithstanding

This is not to suggest that in the short-to-medium terms, the Indian equities would not see serious corrections. But what is clear that the breadth and volatility would rise in the local market as it changes orbits.

In the near term, the market is likely to readjust valuations in sync with the flowing second quarter results. The mid, small and micro cap stocks have already been re-rated upwards. The market has been showing the openness to reward performance and even discount large capex jitters. The period between now and the third quarter results may see the small overcomes the big ones. However, if growth sustainability becomes questionable, the market, according to fund managers, is unlikely to indulge in a false momentum for the non-performers.

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