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From the Fund Managers Desk 1x1pix.gif (807 bytes)
1x1pix.gif (807 bytes)

Saturday, April 09, 2011 17:33 Hrs IST

Keeping in Mind the Expected Corporate Earnings Growth In The Vicinity Of 18% for FY12, the Valuations Look Reasonable

DSP BlackRock Mutual Fund Equity Market Views

The Indian equity markets have held their own in spite of various global issues, such as the Japanese tsunami and the nuclear aftermath as well as the geopolitical risks in various other parts of the world. The BSE Sensex Index climbed 9% in March, on the back of 1.5bn equity inflows, in spite of worries on rising oil prices and high inflation. A steady depreciation in the Dollar Index and containment of nuclear disaster in Japan have been the major catalysts for this market bounce back.

The geopolitical tension in the middle-east has made oil reach $117/barrel, exerting immense upward pressure on inflation. 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. This rising inflation has also been impacting corporate profitability, even as investors continue to look for a kick starting of the cap-ex cycle which has shown some signs of pick-up.

The government's borrowing calendar for FY12, signals some relief as it is pegs the borrowing below market expectations. This should result in downward pressure on interest rates.

From a valuation perspective, the Sensex is currently trading close to its long term average 1-year forward PE multiple of 14.5x. Keeping in mind the expected corporate earnings growth in the vicinity of 18% for FY12, the valuations look reasonable.

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