To new highs & beyond: 5 charts show Dalal Street is gearing up for a long rally
The ongoing rally in domestic equities appears to have a stronger foundation thanks to an expected improvement in earnings growth, a drop in interest rates and favourable global market outlook.
Several factors indicate that this rally is going to sustain for a while. Emerging economies are now more correlated with the developed economies than in 1980s or 1990s. Hence, any improvement in global markets can help market sentiments and lead the benchmark indices to new highs in the coming weeks.
US equity index Dow Jones Industrial Average crossed the psychologically important 21,000 mark for the first time recently, signalled an improving outlook for global equities. There are also early signs of synchronised global growth which augurs well for the domestic market.
Global investment bank Morgan Stanley believes the Sensex can touch the 33,000 level by December 2017 in a base-case scenario, whereas in a bull-case scenario, it can climb 39,000.
The BSE Sensex has rallied over 12 per cent from the lows hit during the demonetisation drive to hit the 28,901 mark on March 8, rising from 25,765 hit on November 21, 2016.
Closely related: Emerging economies are highly correlated to global growth
Other asset classes are also signalling an improvement in global growth. Both US bond prices and industrial metals are moving in opposite directions for the first time since the Lehman crisis.
Sudip Bandyopadhyay, Group Chairman, Inditrade Capital said, “The negative correlation between bond prices and metal prices indicate that the global economy is on the path of growth.”
In addition to this, global industrial activity is recovering in a broad-based manner after two years of slowdown, with both emerging markets and developed markets participating in the rebound. Last time the global economy rebounded in 2012, it was confined mainly to developed markets. This time, the recovery in the domestic and global industrial production has been in tandem.
Export figures show signs of improvement. Edelweiss Securities said the improvement in exports is being led by prices, which should eventually improve even in real terms as global growth gathers pace. Revenue growth of domestic companies is directly correlated to exports. Hence any further improvement in exports will support revenue figures of Indian companies in the coming months.
Lastly, since the global financial crisis in 2008, the equity markets have rallied mainly because of liquidity and multiples expansion despite little growth in earnings. That contrasts with the period between 2003 and 2008, when market performance was almost entirely driven by earnings growth.
Brokerage house Edelweiss believes with the revival in global growth, earnings growth will be a key factor in shaping up return on investment.
Several factors indicate that this rally is going to sustain for a while. Emerging economies are now more correlated with the developed economies than in 1980s or 1990s. Hence, any improvement in global markets can help market sentiments and lead the benchmark indices to new highs in the coming weeks.
US equity index Dow Jones Industrial Average crossed the psychologically important 21,000 mark for the first time recently, signalled an improving outlook for global equities. There are also early signs of synchronised global growth which augurs well for the domestic market.
Global investment bank Morgan Stanley believes the Sensex can touch the 33,000 level by December 2017 in a base-case scenario, whereas in a bull-case scenario, it can climb 39,000.
The BSE Sensex has rallied over 12 per cent from the lows hit during the demonetisation drive to hit the 28,901 mark on March 8, rising from 25,765 hit on November 21, 2016.
Closely related: Emerging economies are highly correlated to global growth
Other asset classes are also signalling an improvement in global growth. Both US bond prices and industrial metals are moving in opposite directions for the first time since the Lehman crisis.
Sudip Bandyopadhyay, Group Chairman, Inditrade Capital said, “The negative correlation between bond prices and metal prices indicate that the global economy is on the path of growth.”
In addition to this, global industrial activity is recovering in a broad-based manner after two years of slowdown, with both emerging markets and developed markets participating in the rebound. Last time the global economy rebounded in 2012, it was confined mainly to developed markets. This time, the recovery in the domestic and global industrial production has been in tandem.
Export figures show signs of improvement. Edelweiss Securities said the improvement in exports is being led by prices, which should eventually improve even in real terms as global growth gathers pace. Revenue growth of domestic companies is directly correlated to exports. Hence any further improvement in exports will support revenue figures of Indian companies in the coming months.
Lastly, since the global financial crisis in 2008, the equity markets have rallied mainly because of liquidity and multiples expansion despite little growth in earnings. That contrasts with the period between 2003 and 2008, when market performance was almost entirely driven by earnings growth.
Brokerage house Edelweiss believes with the revival in global growth, earnings growth will be a key factor in shaping up return on investment.
