Sensex Touches Record High of 35,000
BSE Sensex is on a roll. The index touched a record high of 35,000 on Wednesday and further inched upwards to end yesterday’s trade at a level of 35,260. Considering a span of one year, the benchmark index has delivered a 30% return. Such superior returns within a short span have occurred after almost two decades. So, this is historic.
BSE SmallCap and BSE MidCap index too have delivered mind-boggling returns in the preceding year. Both the indices have shot up by 53.8% and 41.5% respectively.
The index has surged mainly on the back of huge domestic inflows coming into mutual funds. Apart from this, an expected recovery in the earnings too has fueled a hope rally in the benchmark index.
Given the sharp surge, the Sensex price/earnings (P/E) ratio has risen to 25.8 times. This is way ahead as compared to the ten-year median price/earnings (P/E) ratio of 19.6 times. This ratio indicates that the benchmark index could well be in a bubble territory (subscription required) as of now.
The benchmark index lost around 4000 points within a quick span of one month during the 2008 financial crisis. At that time, the benchmark index was trading at a P/E ratio of around 28 times.
Subdued earnings have led to the P/E ratio remaining high. It’s high time that corporate earnings catch up to the market’s expectation. In-case they don’t, a crash as seen in the earlier years cannot be ruled out.
Rally in Banking Stocks
The rally in the stocks in the private banking space continued yesterday. The government is considering allowing 100% FDI in private banks and 49% in public sector banks. The move could pave the way for higher foreign flows in banks.
Stocks such as HDFC Bank, Kotak Bank and IndusInd Bank shot up by 2.1%, 1.8% and 1.4% respectively.
Key Stocks in Action Today
The heavyweights such as ITC, HDFC Bank, Reliance Industries, Kotak Bank, HCL Tech, Wipro are expected to be in the news today as they declared their results for the quarter ended December 2018.
