India is now world’s most expensive market based on price-to-earnings ratio

MUMBAI, Nov. 2 (Economic Times Bureau)

Indian stocks soared to record highs on Wednesday, aided by a fresh bout of foreign portfolio
inflows that drove the rupee up to a six-week high. The Nifty closed above 10,400 for the first
time, led by strong rallies in large lenders including SBI and ICICI Bank. The jump in India’s
position in the World Bank’s Ease of Doing Business (EODB) ranking by 30 places lifted
investor sentiment and drove the rupee higher. Investors believed that the jump in EODB
rankings would increase foreign direct investment into the country.
Oil prices rose to their highest since mid-2015 on expectations that major oil producers will
maintain their output cuts. The BSE Sensex rose 387.14 points, or 1.17%, to end at 33,600.27
while the Nifty gained 105.20 points, or 1.02%, to close at 10,440.50.
Bharti Airtel was the biggest gainer on the indices, advancing 8.2% after the company posted
strong second quarter results. With this, India has now become the world’s most expensive
market based on price-to-earnings ratio. The Sensex’s P/E ratio on a trailing basis is 24.53 times
compared with 19.67 for the Dow Jones, 23.32 for the UK and 17.04 times for the Shanghai
composite.
The rupee gained 15 paise, or about 0.23%, to close at 64.60 a dollar, its highest level since
September 20.Currency market dealers said the spike could have been higher but for the
intervention by the Reserve Bank of India.
Foreign portfolio investors net bought shares worth Rs 1,038 crore on Monday, while their
domestic counterparts sold shares worth Rs 668 crore. Since early August, foreigners have
predominantly sold Indian stocks, which have been absorbed by domestic mutual funds and
insurance companies. While it may be too early to conclude that their selling trend has reversed,
brokers said a sustained rebound in the rupee could lead to fresh inflows.
“It’s a market driven by liquidity,” said Nilesh Shah, managing director, Kotak Asset
Management. “Money is flowing into equities because other asset classes are not looking
attractive and there are hopes of economic and earnings growth.”
Fund managers said cautious traders, who had created bearish bets when the market hit all-
time highs earlier this week, were forced to square up on Wednesday, providing further fillip to
benchmark indices. The gains in the broader market were relatively measured with the mid-cap
index rising 0.35% and the small-cap index moving up 0.65%.
Asian shares hit a 10-year high on Wednesday, while US markets rose on Tuesday night on
expectations of tax rate cuts by the Donald Trump administration. Oil extended its winning run
on Wednesday with Brent crude futures rising to $61.49 per barrel, off the day’s high of $61.70,
the highest since July 2015. In October, oil prices posted their fourth straight month of gains.
Rising crude oil prices are usually positive for sentiment in emerging market equities. For
India, which is a net importer of crude, higher prices is not good news. “Higher oil prices are
tantamount to a negative terms-of-trade shock that weakens growth, pushes up inflation and
deteriorates the twin deficits,” said Nomura’s economist Sonal Varma in a note to clients.
 German Unemployment Extends Decline as Economy Powers Ahead
BERLIN, Nov. 2 (Bloomberg)
German unemployment declined in October as companies added workers to meet surging
demand, underpinning already strong growth momentum in Europe’s largest economy. The
number of people out of work fell by a seasonally adjusted 11,000 to 2.495 million, the Federal
Labor Agency in Nuremberg said on Thursday. That beat the median estimate in a Bloomberg
survey for a drop of 10,000. The jobless rate held at record low of 5.6 percent.
Germany is heading for its best growth performance in six years, with consumption
benefiting from a strengthening labor market and companies more optimistic than ever that the
global recovery will fuel demand. The most recent Purchasing Managers’ Index showed job
creation in manufacturing was among the fastest in the survey’s history.
The Institute for Employment Research predicts unemployment will decrease by some
60,000 people in 2018, Scheele told reporters in Nuremberg. In October, joblessness fell by
about 7,000 in west Germany and by 4,000 in the eastern part of the country.
The number of people in low-wage jobs remains close to an all-time high, and trade unions
are focusing on the quality of work in addition to negotiating higher wages, Brzeski wrote in a
note to clients.
Sluggish wage growth -- not just in Germany but also in the 19-nation euro area -- is one
reason why the European Central Bank is advocating prudence in scaling back ultra-
expansionary monetary stimulus.
Policy makers decided last week to extend asset purchases through September at half the
current monthly pace to fuel inflation, which remains far below the institution’s goal even as the
economy is headed for its best annual performance in a decade.
The Bundesbank predicts that the German economy may have maintained its growth pace of
the first half of the year in the third quarter. First data will be published on Nov. 14. Economists
in a separate survey project an expansion of 0.5 percent.