The BSE Sensex has corrected by over 2000 points in the last 15 days, while the Chinese Shanghai Composite is on fire despite talks of slowdown in China. Many analysts had predicted that fund flows from foreign institutional investors may happen from India to China. That may actually be the case now.
On Sept 15, exactly three months ago, the Shanghai Composite was trading at just 2321 points, while the Sensex was trading at 26,816 points. Exactly, three months down the line, the Sensex is trading at 26,500 points, which is down as compared to three months ago. The Shanghai Composite on the other hand has surged a huge 30 per cent is now trading at 3021 points, super gains in the last three months.
What has changed in the last three months?
There has been rate cuts in China and many analysts see China as a bigger beneficiary of falling oil prices then India. Also, India has rallied sharply as compared to any other emerging market and most analysts still do not see any tangible benefits having come from the new government. In fact, industrial production numbers that were released recently were disappointing and the rupee has now dipped to a 13-month low of 63.66 against the dollar.
Most of the positive factors including low inflation numbers, a new government and hopes of an interest rate cut have been factored and analysts believe most of the good has been factored into prices. India is an expensive market is the consensus and with the Sensex where it is, it may still be over priced as compared to China. In fact, India's price to earnings multiple is close to 17 times one year forward earnings while China is near 10 times, making it cheaper. This is one reason why there has been selling pressure in the Indian markets. Foreign Funds have been aggressively selling. On Tuesday they net sold in the cash market to the tune of more than Rs 1200 crores.
Many analysts feel that the Indian markets are over priced at the current levels and there maybe some more reaction and pain in the coming days as individuals and foreign funds book profits. This would be especially true if we do not keep hearing of innovative policy decisions in the future. For the time being it is best to book profits and wait for a decent correction, before a further momentum in stocks.