By Shivam Saklani
Last week, the Sensex, crossed yet another
milestone of 35,000 points. The index of the Bombay Stock Exchange’s 30 most
actively traded stocks has, in the last one year, risen over 30 per cent. But
it isn’t just the Sensex. The BSE-100, BSE-200 and BSE-500 indices are also up
30.4%, 31.4%, 33.5% respectively, compared to a year ago. In other words, this
is a rally that is broad based and not confined to select stocks whose prices
are being pushed up. The stocks comprising Sensex are today trading at prices
that are 26.06 times, their underlying average earning per share. Such high
price earnings ratios were last seen during 2007-08, when Indian economy were
growing @ 9.3 percent per year, as against 6.1 percent this fiscal. This shows
that investors are being optimist, with a belief that growth pickup is just
round the corner. The expectations from the Budget 18 are soaring as we see the
increase in investments.
The above optimism would be justified when
the budget 18 will be uncovered, what’s interesting, is quite opposite
development in the bonds market. The benchmark 10 year Indian government bond
issued last may, at an initial rate of 6.79 per cent was, on Friday, traded at
7.48 per cent. Since bond yields and prices move in opposite direction, we can
say that {(6.79/7.48)*100 = 90.775}. Thus, we can say that the security which
was originally priced at ₹100 now fetches only ₹90.78
In last one year, 10 year government bonds
yields have gone up by a full percentage point with a surge in the stock
prices. All of this has happened without the tightening of the monetary policy
by RBI, as well as with the high oil prices. The
single implication from all the events is that the Union Budget 18 is to be
drafted without a room for fiscal adventurism, as was indicated by the Prime
Minister today. Although the budget would focus on agriculture and other govt.
schemes such as PM Krishi Sinchayee Yojana, Pradhan Mantri Fasal Beema Yojana,
Saubhagya Yojana, Ujjwala Yojana etc.
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