Sensex 2nd-most range bound in 20 yrs

Written by fe Bureaus | Mumbai | Updated: Jun 28 2010, 13:45pm hrs
The year 2010 seems to be a consolidation phase for the domestic equity market as it turns out to be the second most range bound in the last 20 years. For the first time in 20 years, the 30-share Sensex has moved in a narrow range of just 13.8% between a high of 17,970 points and a low of 15,790 points during the first five months in 2010. Prior to this, the highest range bound was when the Sensex moved in a much narrower range of 13.3% in 2005.

A Bank of America Merrill Lynch (BoAML) report on India expects 2010 to be a year of market consolidation with a single digit positive return. It feels higher valuations and supply of paper is expected to cap its upside. Valuations of the market at 16x 1-year forward earnings are at a slight premium to long term averages. In an Asian context, however, India looks valued on the higher side partly justified though by its insulated growth. Supply of paper should be strong this year and cap upside. We expect supply of paper to be around 2% of market cap ($25 bn) led by PSU disinvestments.

On a similar note, Aneesh Srivastava, CIO, IDBI-Fortis Life Insurance said the global risk are still there and India's relatively higher valuation is expected to make the Indian market more range-bound despite strong domestic growth.

Domestically, earnings growth are expected to be around 20%. But global risk still remains whether it is housing, industrial production and employment data in US or other factor in Europe which can put pressure on the Indian market, he said.

The narrow range movement by Sensex in the first five months of the year is despite the domestic equity market raking in a total of Rs 20,999.50 crore from the overseas investors, which is very close to Rs 21,319.40 crore invested by them during the same period last year. However, in 2009, during the same period the BSE Sensex moved in a broad range of 82.3% between a low of 8,160 points and 14,875 points.

The key difference however in the current year according to experts is the number of initial public offers (IPO) and follow on public offers (FPO) that had hit the market. Around 30 companies had mobilised capital amounting to Rs 13,105 crore during this period. In addition to this state owned enterprises like REC, NTPC and NMDC have together mopped up a total of Rs 21,980 crore through FPO's.

Interestingly, Sebi data shows that of the Rs 20,999.50 invested by FIIs in the Indian market during this period, nearly 50% or Rs 10,307.60 crore have found its way in to the domestic primary market.

Liquidity is strong in the system. But going forward, the macro-economic risk factors in Europe and US will determine whether the liquidity will flow in to the riskier assets or not, said Sreevastava.