How Cheap Is The Sensex?

The current pace of earnings downgrades only makes India's valuation seem deceptive The doomsayers are making headlines predicting more pain with the Sensex possibly hitting a low of 20,000. While most market pundits blame this on global events, the reality is that India's muted economic growth is equally worrying. The lower-than-expected GDP numbers (7% as against 7.4%) for the first quarter ignited fresh worries on earnings downgrades, especially as growth expectations for the Sensex pegged at 21% for FY16 of ₹1,640 per share is fairly high given the economic realities on the ground. During the April to July 2015 period, the index of eight core industries, which includes the energy sector, cement, steel and electricity, reported a mere 2.1% growth compared to 5.5% growth last year in the corresponding period. The downgrades season started last quarter and is only continuing. "Reflecting a reduction in India's nominal and real GDP growth forecasts for FY16, we are cutting our earnings growth forecasts. Our new numbers are a CAGR of 17.3% and 14% respectively for the BSE Sensex and the broad market versus our previous estimate of 20.8% and 17.5% for the coming two years to FY17

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