Tuesday, March 29, 2011 11:03 Hrs IST

Valuations Look Very Reasonable

DSP BlackRock Mutual Fund – Equity Market Outlook

The Indian stock market has been on a decline since the start of this calendar year with the Sensex Index having corrected 12% YTD on the back of heavy FII selling and a spate of governance related issues. The recent threat of Japan affecting world growth also put pressure on the Indian equity market. Further, geopolitical turmoil has led to oil prices reaching $115/barrel, posing a threat to inflation as well as domestic fiscal balance. Consequently, the RBI has in its mid-quarter policy review raised the key policy rates by 25 basis points each, signaling its anti-inflationary stance. From a valuation perspective, however, the Sensex is currently trading below its long term average 1-year forward PE multiple of 14.5x. Keeping in mind the expected corporate earnings growth in the vicinity of 22% for FY11 and 18% for FY12, the valuations look very reasonable.