From the Publisher

The market has been on a tear. The BSE Sensex crossed 75,000 on 9 April, marking an all-time high.

Many, both active in the markets and outside the markets, are wondering how long they can keep rising. Or, they wonder whether the markets are a bubble that can burst.

Business India has been championing the markets for decades now. They are a reflection of change happening on the ground and wealth being created within the country. Of course, markets usually run ahead of events, both on the way up and the way down. But they are not, as many old socialists used to believe, only a gamble nor are they totally divorced from reality. India has come a very long way, and the pace of change has accelerated, particularly since 2000 (even though the real big change started in 1991). Finally, after many years, the educated middle class, particularly the youth, have understood that investing in the markets allows direct participation in growth, and that markets are a very safe way of investing their hard-earned monies to create wealth. We finally have a situation, that with mass participation in the markets through mutual funds, domestic investors are a bigger source than foreign institutions – as they should be.

No major market in the world is dominated or controlled by foreign capital! It is against this background that discussions about markets should take place.

So, though not a bubble, the question being asked is, whether the markets have run too far ahead and are now due for a price correction, which could be painful. Are the markets overpriced? Some analysts point to the high average P/E ratio of over 22, which is much higher than the global norm. Could foreign institutions exit at these prices and wait for prices to come down? And then, would Indian investors follow? They also ask whether India’s growth would falter, more so with two active wars, in the Middle East and Ukraine. These are legitimate concerns. Could the current elections add to uncertainty?

But a more prevalent view is that India is firmly on the growth track. They say that Modi’s return is certain, and it is only a question of the size of the majority. While many others believe, irrespective of the party in power, the economy will continue to grow. Good governance could only accelerate growth by 1-2 per cent. They also point out that historically, India has been an expensive high P/E market, and that if anything current P/Es are marginally below the long-term average. There are several reasons for this, including higher interest rates and higher inflation. But they also suggest that the rate of P/E growth (PEG) is the key factor and not just a simple P/E.

Also, many companies, but particularly the big ones, have used the last few years to bring down debt and focus on capacity utilisation. These are now ready to expand to meet growing demand, which cannot be looked at only on an annual basis. At the same time, many smaller companies are in areas that big companies cannot handle well. They have also been focusing on their core businesses. They have become more nimble, including in export markets. Also, they are well spread across the country, except in the East.

Add to all this the fact that almost all public companies have understood that markets amply reward transparency and good governance. Promoters of companies who adhere to principles have seen their wealth soar beyond their wildest beliefs. This in turn has created huge investment opportunities for both big and small, domestic and foreign investors in our markets.