Opinion Express View on Indian stock markets: Investor exuberance
Markets scale new high, driven by global and domestic factors. But economic growth likely to slow down
The BSE Midcap is up around 40 per cent over last year, while the smallcap index is up almost 43 per cent. Several sectoral indices such as Nifty Bank, Auto, and IT, among others have registered healthy gains. 
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The Indian stock markets have continued to climb higher. On Thursday, the Sensex surged past the 70,000 mark, closing the day at 70,514, up 1.34 per cent. On Friday, the Sensex rose another 1.37 per cent, ending the day at 71,483. Over the past year, the index is now up 16.5 per cent. The rally has been broad-based. The BSE Midcap is up around 40 per cent over last year, while the smallcap index is up almost 43 per cent. Several sectoral indices such as Nifty Bank, Auto, and IT, among others have registered healthy gains.
Among the public sector stocks, companies like NTPC, Indian Oil Corp, GAIL and Coal India have registered impressive gains, while in the private sector, firms like Tata Motors, Bajaj Auto, L&T, HCL and Hero MotoCorp have seen a sharp rise.
There are several drivers, both global and domestic, for the surge in investor optimism. The recently concluded meeting of the US Federal Reserve seems to have indicated the possibility of multiple rate cuts next year. Markets have welcomed the dovish commentary. The 10-year US bond yield has fallen, as has the Indian G-sec yield.
Crude oil prices have also slipped, and are currently hovering around $77 per barrel. The results of the recently held state assembly elections seem to have, in the minds of investors, reduced political and policy uncertainty as the next general elections approach. Alongside, the recent macroeconomic data for India has also been encouraging.
The GDP data, which showed that the economy grew at 7.6 per cent in the second quarter, surpassed expectations. As a consequence, the Reserve Bank of India has upped its growth forecast for the full year. The index of industrial production grew at 11.7 per cent in October. While there is a base effect, activity did rise sequentially. Alongside, electricity production surged 20 per cent in October. And growth in capital goods, infrastructure and construction as well as consumer durables has been fairly healthy.
Investor participation, both directly and indirectly, has been growing at a healthy clip. The number of active demat accounts has crossed 10 crore on CSDL. The mutual fund industry’s net assets under management have risen. As have the retail assets under management.
Alongside, the contribution of systematic investment plans reached an all-time high of Rs 17,073 crore in November. And after outflows in September and October, FPIs have turned net buyers in November and December. However, the Sensex is currently trading at a price-to-equity ratio that is higher than its last 10-year average. And there are signs of economic growth slowing down in the months ahead.
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