Rally forecasts seem possible

Sometime in mid-August, at the height of the sub-prime crisis in the US, Tata Mutual Fund MD Ved Prakash Chaturvedi predicted that we might see the 1,00,000 mark for the Sensex index in our life time. It sounded outlandish as the markets were then battling the fast FII outflows in July and the Sensex fell below the 14,000 mark), but Chaturvedi said he is on record on his forecast.

Morgan Stanley, in a report released early this year, forecast 50,000 for Sensex by 2020.

First Global Securities head Shankar Sharma, early this month, said he will not be surprised if the index touches 25,000 to 30,000 in the next 12 months or so.

All the three predictions look quite possible now (and perhaps, in much quicker time), going by the frenzied pace at which stock prices are rising here.

Are we getting into the euphoria territory? After all, in all bull markets, the stocks rise faster and steeper in the last stage "" before the end. Be it the Harshad Mehta-period, or the Ketan Parekh-cum-dotcom period. But experts say the party has just begun (take it as half-way stage).

One reason they cite is that companies are growing at 20 per cent-plus rate, and that Indian markets perhaps are getting re-rated; meaning investors are ready to pay higher multiple for profits.

Historically, Indian stocks trade at earnings multiple of 17-18 times. At current prices, the earnings multiple for the Sensex is 26 times.

A re-rating would mean investors would be willing to buy stocks at earnings multiple to 20-25 times, according to Seshadri Bharatan of Dawnay Day.

During the Harshad Mehta-bull run (which eventually ended in scam in early 1990s), the prices rose to a dizzying 41 times earnings.

This week, which marks the 20th anniversary of the Black Monday (when stock prices crashed in the US), FIIs are flocking to the market, as if there's no tomorrow.

In India, after the four-year bull run, when stocks rose by an average of nearly 45 per cent-plus every year, new and new investors (both foreign, and even domestic) are coming in, in the belief that stocks will give positive returns, over longer periods.

"At every dip, new investors, who have missed the bus, will enter. So, we see the Indian markets, like any other markets abroad, may give positive returns," says Bharatan.

There are only a few exceptions, across the globe. For instance, Japan's Nikkei is at 17,300 levels, less than half of its peak of 38,915 during 1980-end.

Experts say India is different. Fundamentals, and of course, liquidity, will continue to pull up the markets further, at least for another couple of years.