India's Nifty Index Rises to Record as Fed Keeps Rate Outlook
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“The U.S. Fed action was in line with market expectations and allayed concerns that the outlook comments might turn hawkish,” Hemant Kanawala, head of equities at Mumbai-based Kotak Mahindra Old Mutual Life Insurance Ltd., said on phone.
“This is positive for emerging-market flows and overseas inflows to Indian stocks will resume,” he said.
Resumption of foreign inflows and seven straight months of net purchases by local funds have boosted the valuations of Indian stocks to their highest level in more than six years. The Sensex traded at 17.3 times estimated 12-month earnings, the highest since November 2010.
Foreign funds have purchased $3.5 billion of local shares so far this year after a record $4.6 billion outflow in the three months through December. Domestic funds have been buyers for seven straight months through February, including a record 138 billion rupees ($2.1 billion) in November.
“In an environment where earnings haven’t been so exciting the valuations from the price-to-earnings perspective will always look expensive,” Kanawala said. “Price-to-book ratio is a better parameter in such cases.”
India has been making headlines for all the right reasons of late. The country has just moved from 2G to 4G mobile speeds which has the potential to unleash economies of scale in online business that were not previously possible. Efforts to boost manufacturing are paying dividends with Apple opening a factory in the country. Meanwhile Modi’s emphatic victory in, Congress Party dominated, Uttar Pradesh signals widespread public support for his administration’s reform and anti-corruption mandates.
The Rupee has now rallied to break a lengthy progression of lower rally highs which is a positive development for prospective foreign investors not least because Indian overnight interest rates of 6.24% are attractive when the currency has potential to appreciate.
The Nifty Index is pulling away from the psychological 9000 level while a clear and sustained move below that level would be required to question medium-term upside potential.