50,000 to 60,000 in 8 months: What's behind Sensex rally and is it sustainable?
The stock markets in India have been on fire, giving massive returns to investors in a pandemic-hit year. Both Sensex and Nifty have reached record highs - the former breached the 60,000-mark for the first time on Friday.
It has taken a little over 31 years for the 30-share index to traverse from 1,000 level to 60,048.47 at close of trade on Friday.
In this year alone, the Sensex jumped 10,000 in about eight months - it crossed the 50,000-mark on January 21, 2021 and 60,000 on September 24.
"Sensex reaching 60,000 first time ever on September 24, 2021 is an indicator of India's growth potential, as well as the way India is emerging as a world leader during Covid period in addition to worldwide monetary expansion and relaxed fiscal policies adopted by world powers," said Ashishkumar Chauhan, MD and CEO, Bombay Stock Exchange (BSE), which is popularly called Sensex.
The BSE benchmark index has gained 25.75 per cent so far this year.
Sectors that have driven the rally
An analysis of sectoral indices shows that the rally from 50,000 to 60,000 has largely been broad based. Eleven put of 19 sectoral indices have seen over 25 per cent growth over February 3 and September 24. Only the auto index has shown a negative growth in this period as local lockdowns and the global chip shortage hampered vehicle production schedules and major automobile units. Indices representing stocks of metal companies, basic materials and realty sector have gained the most during this period.
Is this rally sustainable?
A look at one of the most basic indicators of stock market performance, the price to earnings or PE multiples, suggests that the stock market may be overpriced. The PE multiple measures price of a share to earnings per share. PE multiple for Sensex in the current year at 31.43, the highest since 1998-99. Further rally might depend on firms' second-quarters earning since these would be compared to the higher earnings (due to large-scare cost cutting) reported by them last year.
The market capitalisation of BSE-listed companies has also been soaring and is currently at ₹2,61,18,539.92 crore.