On
July 3, the Bombay Stock Exchange (BSE) index succeeded in touching the level
of 80,000, while the National Stock Exchange (NSE) or Nifty also crossed the
level of 24,000. The Sensex was at 10,000 level on 6 February 2006, whereas it
reached 20,000 level on 29 October 2007, 30,000 level on 4 May 2015, 40,000
level on 23 May 2019, 50,000 level on 21 January 2021, 60,000 level on 24
September 2023, 70,000 level on 11 December 2023 and 80,000 level on 3 July
2024. Thus, the Sensex has increased by more than 50,000 during the tenure of
the Modi government from 2014 to 3 July 2024.
The Sensex completed the journey from
70,000 to 80,000 in just 139 trading days, while it took only 57 days to cross
the 5,000 level. Earlier on 24 September 2021, the Sensex had travelled from
55,000 to 60,000 in just 28 trading days. The reason for this rise was the
significant increase in the shares of companies like FMCG, IT, banking, real
estate etc. Due to the expectation of the government to remain stable and the
economy to remain strong in the coming months & years, the Sensex may soon
cross the level of 90,000 to 1,00,000.
Even though the Sensex has seen a
tremendous jump, the valuation of the shares is still very low. The Sensex
shares are not very expensive i.e. the PE ratio of the companies is low. When
the Sensex reached the level of 50,000 in January 2021, the valuation (PE)
ratio of its companies was trading at 34.4 times PE as compared to earnings per
share. When the Sensex reached the level of 60,000 in September 2021, its PE
was trading at 31.3 times, when it reached 70,000, its PE was trading at 24.8
times and when it reached the level of 80,000, the PE was trading at 24.3
times. Therefore, it is believed that the valuation of stocks will improve in
the coming months and the Sensex will also continue to be bullish. However, the
provisions of the Union Budget, the movement of monsoon, the level of
inflation, the stance of the Reserve Bank of India regarding monetary policy
etc. will determine the movement of the stock market.
The condition of the stock market
continues to remain strong on the strength of domestic investors. In 2024,
domestic investors have invested more than Rs 2.28 lakh crore in the stock
market. Not only this, but domestic investors have also played an important
role in taking the Sensex from 75,000 to 80,000 level. Companies like Reliance,
Mahindra & Mahindra, ICICI Bank, Bharti Airtel, State Bank of India and
HDFC Bank have also played an important role in taking the Sensex from 70,000
to 80,000 level. Talking about sectors, banking, BSE Power, BSE Realty, Auto,
Telecom etc. have helped in maintaining the surge in stocks. Apart from Sensex,
Nifty 50 also continues to be bullish. In the coming days & months, it can
touch the level of 25,000 and by the end of this year it can close at the level
of 26,000 to 27,000.
The new government has taken charge.
Nirmala Sitharaman has again become the finance minister. Therefore, it is
expected that the government will carry forward its old policy against the
banking and economic sector, because the earlier policies of the government
have helped in strengthening the Indian economy along with banking sector and accelerating
the pace of development.
There is an atmosphere of enthusiasm
among investors due to the continuous rise in the Sensex, which is a positive
sign for the economy. At present, the selling phase is going on in the stock
market of almost all the developed countries including USA. Due to the Corona pandemic,
geopolitical crisis etc., the condition of the stock market in developed
countries is not very splendid right now. There is also a slowdown in the
global economy and there are chances of recession in some countries. However, there
has been a slight softening in the level of inflation at the global level,
because the supply chain at the international level has become a little better
than before and the price of crude oil has also softened. In such an
environment, foreign investors are being motivated to invest in the Indian
stock market in the hope of getting better returns.
India is continuously moving ahead on
the development front. The GDP growth rate in the fourth quarter of FY
2023-2024 was 7.8, while it was 6.1 percent in the same quarter last year. At
the same time, the GDP growth rate in the financial year 2023-24 was 8.2
percent, which is 1.2 percent more than the estimate of the Reserve Bank of
India. According to the Ministry of Statistics, the growth rate remained fast
during the period under review due to strong performance in the manufacturing
and mining sectors. The manufacturing sector has grown by 9.9 percent, which
was minus 2.2 percent in the financial year 2022-23. Similarly, the mining
sector grew at the rate of 7.1 percent during the financial year 2023-24, which
was 1.9 percent in the financial year 2022-23.
The National Statistical Office
released the retail inflation data on June 12, 2024, according to which retail
inflation stood at 4.75 percent in May, which was a 12-month low. There was
some reduction in retail inflation in the month of April, but it was slightly
higher than the month of May at 4.83 percent. Retail inflation was 4.81 percent
in June 2023, while it was 4.44 percent in July 2023. The central bank is very
sensitive about inflation and wants to keep the economy strong by maintaining a
balance between inflation and growth rate.
Despite the lending interest rate
remaining at a high level for the last few months, loan disbursement is
increasing, as the banking sector continues to remain strong, which is giving
strength to development.
HSBC India's PMI figure also stood at
57.5 points in May 2024, which was 58.8 points in April, while the composite
PMI was 60.50 points in May 2024, which was 61.50 points in April 2024. These
figures reveal about pace of economic activities. PMI or composite PMI being
above 50 points means that economic activity in the country remains booming.
At present, India's growth rate is
continuously collective because inflation is a slight high, but still within
the tolerance limit set by the Reserve Bank of India, loan disbursement is also
cumulative, domestic and foreign investors are continuously investing in the
country, foreign exchange reserves are snowballing, industrial production is growing,
the price of crude oil is decreasing in the international market, the balance
sheets of government and private companies are getting cleaned up and their profits
are also improving, private investment and expenditure are also increasing,
etc.
In such a condition, it is natural
for the Sensex and Nifty to remain in a bullish trend. Such a circumstances is
beneficial for the economy and conducive for development. A decrease in the
price of shares not only causes loss to investors & companies, but it also
has a negative impact on the country's economy and FDI decreases due to selling
of shares by foreign investors. In its absence, the country's growth rate,
employment, economic activities are also negatively affected. However, right
now there is favourable surroundings for investment in the stock market, which
all Indian and foreign investors should take advantage of.
(Satish Singh is Ahmedabad based senior columnist. Views are
Personal. Email: singhsatish@sbi.co.in)