Ahead of the fundamentals?

Not only is it riding an unprecedented inflow from foreign institutional investors (FIIs), the market cap has actually grown more than the size of the economy --- the only economy among leading nations where this is the case. The stronger GDP growth rate for India (IMF projects India’s growth at 9.4 per cent for 2010-2011, next only to China) may justify this kind of movement to an extent, but experts say the Indian markets have moved ahead of fundamentals.

“The companies are becoming expensive and the fundamentals are not justifying the current optimism,” said the head of a mutual fund who did not wish to be named.

The German economy is more than two-and-a-half times the size of India, but India’s market capitalisation is now ahead of the European giant.

Over the past one month, the Sensex has outperformed markets across all major developed and emerging economies, and has grown by 8.7 per cent on the back of the strong FII inflows. Germany’s DAX followed closely with a gain of 8.4 per cent in the period, while all other major economies grew 3-5 per cent.

This FII enthusiasm on the India growth story has now brought it into a territory that is even concerning the best of the fund managers to take fresh positions, and both broker and MF community is advising the retail investor to practice caution and not get carried away by the momentum.

http://www.hindustantimes.com/Ahead-of-the-fundamentals/Article1-603082.aspx