The Hindu Business Line : Market View

Although the Sensex has recovered a large part of the fall, the broader market has not recovered to a similar extent. The markets are trading at reasonable valuations and returns are likely to trail earnings growth over the medium to long term.

HDFC Mutual Fund

In recent times, there has been a growing consensus about the economy's ability to sustain an 8 per cent plus growth, with domestic macro-economic indicators as well as forecasts by international agencies supporting this view.

The strong growth outlook is broadly positive for Corporate India and suggests a continuation of positive earnings trends. However, sustained above-trend growth in the economy is likely to have implications for credit offtake and inflation and could exert upward pressure on interest rates. On the other hand, the recent softening in commodity, particularly crude, prices, if sustained over a period could contribute to an easing of margin pressures on earnings. In balance, we believe that earnings growth for India Inc could align more closely with revenue growth, going forward. However, revenue growth is expected to remain at levels healthy enough to provide a reasonable base to valuations.

Franklin Templeton Investments

Data on Index of Industrial Production (IIP) released by the government on September 12, shows that the year-on-year growth in industrial production for the period ended July 2006 was 12.4 per cent, much above the median estimates of about 9.9 per cent (Reuters). This is the highest growth number since May 1996. The surprises were in the growth rates for mining (up 6 per cent) and electricity generation (8.6 per cent) as both sectors had contracted in the same period last year. The release of these numbers point to the underlying robustness in domestic growth, and to the possibility that the need to check inflation could still be high, even as fears of a slowdown have triggered a pause elsewhere. The bond market responded to the news with a yield increase, as expected, though the Finance Ministry held that the growth numbers do not portend inflation risks.

OptiMix View and Outlook

Positive fundamentals like the US Fed rate pause and softer crude along with liquidity drove the market last month. Going forward, the direction of the market would be determined by the outcome of the next FOMC meeting, crude price trend and second quarter results. Also, as Q2FY07 draws to a close, investors will be ready to discount FY08 earnings. The IPO supply is building up with more than 200 IPOs in the pipeline. The valuations are above fair value on FY07 basis and prices look perfect.

Prudential ICICI Mutual Fund

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