Compass: The market's not cheap yet
Shobhana Subramanian / Mumbai
At 15,515, the BSE Sensex may not have breached March 2008 lows but many large cap stocks have. What's significant about the fall today is that the market has crashed on volumes that are higher than average volumes seen over the last couple of weeks.
The breadth has been bad and important technical levels have been broken, especially the 4600 level for the Nifty which closed at 4586. Not surprisingly, mid-caps have taken it on the chin, falling by over 3 per cent.
The markets are only reflecting investors' concerns about the worsening macroeconomic situation — higher inflation and higher interest rates that could hurt growth and profits. The March 2008 quarter numbers from India Inc reveal that revenue growth is slowing down and that operating profit margins are clearly under pressure.
So given that there could be earnings downgrades, the market could remain expensive even as it falls. Even now, India is still expensive compared with other emerging markets: a Merrill Lynch report highlights that India is trading at over 17 times twelve-month forward earnings, way above Korea at 12 times or Taiwan at 13.4 times. Not surprisingly, both in May and between January-May,
While FIIs have been net sellers this year, mutual funds (MFs) and insurance firms, who were big buyers earlier in the year, aren't doing so now. MFs were net sellers in March and April and in May, they bought negligible amounts. That's probably because inflows into mutual funds are slowing down: they were down 91 per cent month-on-month in April 2008, to their lowest level in six months. Insurance firms too are seeing lower inflows of premiums. Retail investors are understandably jittery. It's not that the
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