It took 18 months for the benchmark index — Sensex to climb from 10,000 to its all-time high of over 20,827 on January 11, 2008. The return journey took just half as much. If the bull run was considered sharp, the fall has been steep.
While the Sensex was on a run during September-October last year and was jumping over 1,000 points in quick trading sessions, the cycle has turned this time around as it is back to the levels it traded in June 2006.
The price to earnings multiple of 12.5 that the Sensex is currently trading at has taken it precisely where it was standing six years ago when the Sensex stood at 2,834. In effect, at a Sensex of a little under 10,000 today, we are buying value of 2002.
The major damage over the past one-month has been done by foreign institutional investors (FIIs). If FII inflows made news the previous year, it’s the quick outflows that are hogging the news highlights today. The rush to get out of the Indian market has only been gaining momentum with every passing day.
The total FII outflow from the Indian equity market between January and October 2008 has been to the tune of Rs 46,600 crore, more than a fifth of which (around Rs 10,000 crore) has come in the first 17 days of October.
On October 17, when the Sensex crashed by 606 points to go below 10,000, net FII outflow from the equity market amounted to more than Rs 1,900 crore.
Even as we talk today the total FII investment in the Indian equity stands at Rs 236,807 crore, which is close to 19 per cent of the total free float (equity other than held by promoters and the government).
Exactly a month ago when the Sensex was trading at a level of 13,200, the total free float of BSE 500 stood at around Rs 1,650,000 crore. Today, it’s down 25 per cent to Rs 12,40,000 crore. Thus the total erosion of value over one month has been over Rs 400,000 crore of the free float of BSE 500.
It is finally this pressure from foreign funds that began to exit from India that has led the Sensex to trade at a 28 month low on Friday and close below 10,000 mark at 9,975. And while nobody can tell the direction of the market tomorrow, this exodus of dollars is unlikely to stop anytime soon.