The Sensex and the Nifty briefly hit record highs on Monday on the back of continued strong foreign buying in blue chips such as HDFC Bank, but edged lower soon afterwards on profit-taking and because of falls in regional shares. The Sensex all-time high of 22,005.54 points marked its third consecutive record high in as many sessions, while the Nifty hit a second consecutive milestone at 6,545.10 points.
The headline-making indices of the Indian stock exchanges, the BSE Sensex is at new highs. However, compared to their heyday of 2005-07, their capacity to inspire headlines stands considerably diminished.
There are many reasons for this lack of excitement. The biggest of course, is that it’s hard for investors to be excited by these fake numbers. Not literally fake of course, but in any real sense, these ‘all time highs’ are anything but. Firstly, of course, the indices themselves are very different. Since the last significant market high in January 2008, nine of the Sensex 30 and twenty one of the Nifty 50 have changed. Since the exclusions are always stocks that are on the decline and the inclusions those that are rising, these changes introduce an upwards bias. Overly precise what-if calculations are pointless, but in the original formulation, both indices would have been 6-10% lower.
One could say that indices are always changing so such exercises are pointless. There are other, more rupee-paisa ways in which the indices are actually lower today. Comparing the current level of the Sensex to the level of 20,873 points on January 8th, 2008, here are some more realistic views on where the index is. Adjusted for consumer inflation, the Sensex is at 14,500. Indexed to how much someone would earn in a bank fixed deposit, it is at 13,300 points. In US dollar terms, it’s at 14,150 points. All time high? Hardly.
What’s worse is that even these contrived highs are limited to large companies. Indexed to the Sensex of January 2008, the BSE Midcap index is at 14,263 and the BSE Smallcap at 10,233. Of course, all this could be good news. Business cycles turn, companies learn to deal with tough times and stock prices revert to mean. The political management of the economy too, can perhaps change for the better. Perhaps, after all, good times are coming.
(With inputs from Reuters)