business

Updated: Feb 06, 2018 21:40 IST

Indian stocks saw their value fall by ₹2.7 trillion on Tuesday, mirroring the fall in US and global markets caused by Friday’s report that showed wage inflation on the rise in the US.

Indian investors had already signalled their unhappiness at the long term capital gains tax imposed on equities in the Budget on February 1 and probably needed a trigger to let off steam; happenings in US markets provided that. Sensex, the benchmark index of BSE Ltd, closed 68 points down on February 1, 839 points lower on February 2, 309 points down on February 5, and 561 points lower on Tuesday.

Still, India was better off than most markets. Sensex opened 2.89% down but gained ground and closed 1.61% down. In contrast, in Monday’s trade the US Dow Jones Industrial Average opened 1.32% down and closed 4.60% down, and on Tuesday, Japan’s Nikkei index opened 1.79% down and closed 4.73% down.

The Sensex was down 1274.35 points (3.67%) at one point during the day, and touched 33,482.81. It closed at 34195.94 on a day that saw a normal volume of trades.

The big question is: is the great Indian (stock market) story over? Indian markets rose 27% in 2017. They are down 7% since 29 January. Analysts are divided. Some say the markets will recover soon. Others say there will be more correction.

“The Indian markets are still 15-20% over-valued but that does not mean that the markets will correct by that much. Markets have stayed over-valued for the past one year and they will remain over-valued for some more time to come. But it is safe to assume that we are still 15-20% away from fair value,” said Saurabh Mukherjea, CEO of Ambit Capital, in an interview with Mint.

In terms of the PE (or price earnings) multiple, the Sensex is trading at 17.94 times 12-month future earnings (investors measure whether a stock is expensive or not by finding out the relationship between its future earnings – in this case 2018-19 earnings – and its price). That’s expensive, but not overly so. The Sensex has been costlier – in November 2007, it was trading at 21.44 times 12-month future earnings.

Interestingly, Tata Motors Ltd, which on Monday reported that its net profit for the three months ended December rose 11 times, was the Sensex stock that lost the most, reflecting behaviour on a day when fear, and the desire to book profits, outweighed reason. It closed down 5.45%.

On Tuesday night at 11pm India time, the Dow Jones Industrial Average was down 0.16%.

Interestingly, the prices of safe haven investment option gold neared a six-month high on global markets. In India too, gold prices rose by a little over a 1% to a 14-month high.