Indian Indices Turn Volatile; Yes Bank Slips 5%

Share markets in India are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the consumer durables sector and banking sector witnessing maximum buying interest, while telecom stocks and healthcare stocks are trading in red.

The BSE Sensex is trading up by 141 points while the NSE Nifty is trading up by 19 points. The BSE Mid Cap index is trading down by 0.3% and the BSE Small Cap index is trading down by 0.9%.

Speaking of Indian benchmark indices, note that overall, the Sensex PE ratio has been in expansion mode over the last five years.

Between the election results of 2014 and 2019, the Sensex PE expanded by 52%.

The chart below shows the change in the Sensex price to earnings (PE) multiple over the last five years of Modi government.

Sensex Rally Driven by PE Expansion in Modi's First Term

Sensex Rally Driven by PE Expansion in Modi's First Term

 

What this means is that most of the gains in Modi's first term have come mostly from an expansion of valuation multiples and only partially due to earnings growth.

What are the implications for investors in Modi's second term?

Ankit Shah answers this question in one of the latest edition of The 5 Minute WrapUp. Here's an excerpt of what he wrote...

  • In my view, what worked in Modi's first term may not necessarily work in the second one. Back in 2014, you could have put your finger on a random set of stocks, and there were good chances you would make money.

    But right now, the circumstances are quite different. The overall markets are trading at elevated valuation multiples. The economy has been showing signs of fatigue. The financial sector is still in a mess. Unemployment levels are high.

    For much of Modi's first term, the global markets were in a bull run. However, global economic conditions are not as favourable now. There are growing fears of an impending global slowdown. There has been an escalation in the US-China trade war.

    Given all these factors, do not expect the markets to have a broad-based bull run in Modi's second term.
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Disclaimer: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research ...

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