Bse Sensex Trading At Fair Value?

Is the current BSE Sensex a buying level for the investors? At present, the BSE Sensex trades at a PE of 10, almost at its historical low. So this should be a signal for the investors to get in? But analysts do not agree on this. Some of them say that the crisis is yet to peak and corporate earnings will be further hit. Some analysts say that BSE Sensex at 6,000 could be the right buying levels. They argue that GDP could fall below 5 per cent, further impacting the corporate earnings and pushing the Sensex PE multiple to around 8.

Other say that already some overseas funds with long-term perspective have already started buying at current BSE Sensex levels. They also say that with hedge fund redemptions coming down in recent months, the BSE Sensex is likely to face less selling pressure. Despite the differences, one thing is for sure. We are in a bear market and it is difficult to predict in the short term. What is interesting to note that next year a lot of oil and gas projects are going to come online: RPL's Jamnagar refinery and gas production from Hazira, RIL's KG basin output and some new projects of Cairn India. This will ease some of the downside pressure on the Sensex earnings.

Sure, the current meltdown has more than destructed values in many sectors and in many cases more than what even simple logic suggests. In the current market, some experts say that some steel companies and cement companies are trading at 20 per cent to 40 per cent at their replacement cost. Indeed some experts have said at the BSE Sensex levels there is a mega clearance sale going on. For example, Tata Steel now at current prices of Rs 150 levels has a market cap of about Rs 11,000 crore. But even discounting its debt, its assets are estimated at Rs 50,000 crore to Rs 75,000 crore.

Despite such cheap levels, why are not buyers stepping in? Probably, they are still wrenching in pain after a 50 per cent to 60 per cent loss in BSE Sensex. But equities have some more things in their favour. As the governments are under pressure to bring down rates, this will translate into lower deposit rates. And the lower commodity prices will also benefit the corporate bottomline. Whatever be the outcome, one thing is sure: There would be intermittent pressure building in the BSE Sensex. Despite the US government announcing a bailout package for troubled Citigroup, Indian markets remained volatile and closed mixed on November 24. Indian stocks in which Citigroup held substantial stakes came under heavy selling pressure in the fear that the group may soon liquidate the holdings.

Satyam Computer Services, in which Citigroup Global Markets Mauritius holds 1.22% in the firm, plunged over 4 per cent on Monday. India's top mortgage lender Housing Development Finance Corporation fell nearly 2 per cent in highly volatile trade. Citigroup holds nearly 12 per cent in HDFC through various entities.

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