Financial Daily from THE HINDU group of publications
Wednesday, Mar 29, 2006
Markets - Stock Markets
It is India's time in the limelight: Jhunjhunwala
Economic growth in India is going to be far greater: Jhunjhunwala
We were denominated by a weaker currency for most of the time: Damani
The Sensex at 11,079 is just a short distance away from the Dow Jones Industrial Average. Is this just a numerical landmark, given that the Dow's market cap is 27 times that of the Sensex? Are we comparing apples to oranges?
Dalal Street wizard Rakesh Jhunjhunwala says history is finally shifting from the Western markets to the emerging ones.
On the other hand, the BSE member, Mr Ramesh Damani explains, "Are we comparing apples and oranges, perhaps in a sense, yes?
Excerpts from an interview given to CNBC-TV18
Are there any points of comparison or are they just two different things and cannot be compared at all?
Jhunjhunwala: I don't think we are looking at two different things, which cannot be compared, but we are looking at the cusp of history shifting from the western world to the emerging markets.
My view is that economic growth is going to be far greater and there is going to be a shift to the emerging markets, with India being one of the largest ones.
One must not forget that the Dow was 100 in 1900 and today it is 12,000 and the base of the Sensex is 100 in 1979. Therefore, if we compare the rise from 1900 to 2006 and compare the rise from 1979 to 2006, the Sensex has given a far greater result, rather than the Dow.
The growth of Sensex has been stunning and in case of the Dow, not so much. Does that really point to a shift in the economic balance?
Damani: Are we comparing apples and oranges, perhaps in a sense, yes? The Dow is a price-weighted index. There is a 100 rule among Dow company stocks. When the stock goes to a 100, you split the stock and bring it back to 50. So the absolute price of the stock is more important. Whereas, with the Sensex, it is a free float market cap weighted index. So in that sense they are different.
One must remember that we were denominated by a weaker currency for most of the time. So the returns in terms of dollar and in terms of gold would be substantially less because Indian rupee has been consistently weak between 1979 and 2000.
Jhunjhunwala: Even if one takes into account the inflation and weak rupee, then I think the return of the Dow and Sensex could be quite equivalent.
Is it a concern that Sensex P/E is at 18.9 and Dow P/E is 18.5?
Jhunjhunwala: Well but the growth rates are different and may be interest rates in America are still lower than in India. But growth rates in India are much higher than in America. One must also not forget that there is vast domestic underexposure to equity in India. Is that a valid point that the American market has almost 70 million investors, India just a fraction of that?
Damani: Of course, it is a great point but my sense is rather than going into Sensex stocks, they might go into IPOs, which now has a strong pipeline.
The Dow Jones had been at 10000-11000 for almost five years? Any worry that the Sensex could go the same way?
Damani: It is a well-known axiom when you follow indices, for example, the DJ hit 1,000 for the first time in 1968, it didn't cross that level again until 1982. Then when it broke out of that range, it went to 10,000, the next 10 years or so. Similarly, our Index in 1992, we made a top of 4,500 but we didn't cross that top decisively until 2003. So once we have broken out, it tends to be a huge move.
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