Earnings To Drive Sensex Hereon

Let me start my editorial giving you a quick perspective on the broader market scenario. Over the past five years, the Sensex has delivered a CAGR return of a mere 7.56%. This is way below the long-term average of 15%, that is expected from the market. On the other hand, the one year forward PE multiple of the Sensex five years back was ~18.73x while currently it’s at ~27.4x. This implies that a good chunk of the Sensex returns are accountable to expansion in the valuation multiple. This high PE multiple is already discounting all the good news, ie a stable government at the helm, the recent corporate tax cut, anticipation of relaxation in LTCG, STT, etc. Now, to expect the market to keep gaining ground only on factoring higher valuation multiples would be stretching a bit too long. I personally feel this factor would be plateauing for now. A market surge supported by earnings growth is more convincing vis-a-vis plain valuation expansion and we expect companies to deliver on this front.

Being deep into the Q2FY20 results season, our research team has been slicing and dicing all data collected so far to assess the current progress of our corporate sector and the economy as a whole and figure out whether there are any signs of improvement. The results are expected to get better in the next quarters as the corporate tax reduction impact will also help. This entire study has been detailed in our cover story “Q2FY20 - A Mixed Bag” in this issue.

In terms of global cues, as stated in my editorial of Sept 2-15 issue, apprehensions about the US economy hitting a recession are not validated. Data emanating from the US hint at a recovery and hence the likelihood of the US heading into a recession has receded for now.

Our special feature, Banking, is a must read especially when the sector has been taking a lot of flak owing to NPAs, non-performance, governance issues etc. The reality of the matter is that the banking sector continues to be a relatively better performer than the broader market and could be a potential catalyst in leading the market into higher territories. In fact, this time we have gone ahead to felicitate and award the performing banks. We appreciate and recognize their excellent work and contribution in propelling the economy.

Last but not the least, the market feel good factor is slowly inching back. Do not sit on the fence too long. The present market poses ample investment opportunities to embark upon. Take your position soon. May the force be with you. 

RAJESH V PADODE
Managing Director & Editor