The Indian rupee (INR) today hit its lifetime low of 52.84/85 against the dollar (USD) as demand for the US currency soared amid signs of FIIs pulling out money in the wake negative growth in industrial production in October. In the forex market, the rupee opened lower at 52.09/10 a dollar and dropped further to finish at all-time record low at 52.84/85, down 81 paise, or 1.56% from its previous close.
In the article dated 9th Sep 2011 titled 5 year USD INR Chart, InvestorZclub predicted that the rupee would continue to stay weak due to unfavourable factors, which were clearly visible in the chart.
The currency fall is not at all good for our economy and stock markets and might lead to derating of the premium valuation multiple that we have been enjoying since past few years due to consistent 8% plus GDP growth. But now as growth is expected to slow down significantly in FY 13 it is almost certain that we no longer deserve premium valuation and should trade at multiples similar to our asian peers.
For FY 13 the EPS for SENSEX is expected to be around 1200. At 12 times PE multiple we might head towards 14000 - 14500 levels on sensex. The worst case scenario is when we get derated to 10 times PE multiple in which case we might even fall towards 12000 levels on sensex.
Historically all fast growing economies had two or three bad years when they had shown only modest growth in GDP but eventually growth resumes. Hence from FY14 onwards we might again comeback on the 8% plus growth trajectory.
So if our stock market fall more than 15% from current levels of around 16000 it will certainly be very good time to pick some quality large cap stocks as the risk reward ratio would be extremely favourable at that time.
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