The Hindu Business Line : Sense at 15,000

The significance of the Sensex touching the 15000 mark goes beyond its crossing yet another milestone. The present number, suggesting as it does that investors are prepared to pay more than 20 times, for a recurring inflow of a rupee of future earnings from Corporate India’s blue-chip stocks, goes against all accepted notions of risk and reward in investments. Since it can be nobody’s claim that they have taken leave of their senses, it follows that they have b ased their calculations on corporates returning not just a stream of future earnings that is constant but that is, in fact, growing at an attractive rate.

The investors would appear to have been aided in this assessment by the lifting of the uncertainty clouding future corporate earnings. The trend of hardening interest rates has not only been halted, there is also a distinct possibility that rates may ease in the near future. Concerns over inflation have abated somewhat with the latest wholesale price index number coupled with the above average monsoon performance suggesting that the worst may be over on the price front. The Government’s fiscal situation too, while not exactly in the best of shape, is far from setting off alarm bells among the investment community. But this improving picture of the economy is tinged with streaks of grey too.

Many pivotal stocks that make up the market indices have failed to participate in the latest rally; the performance of the automobile sector has turned sluggish in recent months and the rising rupee threatens to weigh down software and pharma sector earnings. These are enough for investors to entertain misgivings about the future. The economy has managed to grow despite structural rigidities such as poor agricultural productivity, inadequate urban infrastructure, and shortage of urban land for industrial and residential needs. The rulers are still struggling to resolve policy dilemmas, including on the role, if any, that the organised sector must play in retail trade, and ownership norms for foreign capital in select sectors. Then there is also the disruptive potential that divisive politics holds. New economic policies are able to come through only after dodging heavy political crossfire. Some arrive scarred, some mutated. The present rally suggests that the market is for now, sanguine about the Government’s capacity to handle these issues deftly.

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