With the Indian Capital Markets witnessing the biggest Bull run of this decade. Is this bull run justified by the fundamentals of Indian Inc. or is it a bubble, which will burst soon?

While there is a De-growth in earnings of India Inc, last three years the Indian Capital Markets have made record high.

Expectations- After demonetization, markets expected a de-growth in the corporate earnings of India Inc, even though the repercussions of Demonetization persist. However, the street Market expects the earnings will pick up given the stability in the macroeconomic factors of our country. The bottom line, Indian Capital Markets discounts every piece of information, i.e. the sentiments play a significant role in shaping the Indian Capital Markets. If the earnings don’t pick up in the upcoming quarters, markets will witness a sharp correction, and the optimism will fade

Liquidity- There is a straightforward negative connection amongst FII and DII (Foreign Institutional Investors and Domestic Institutional Investors), i.e. at the point when FII offers, DII purchases and the other way around, so the Indian Capital Markets don’t fall suddenly. In any case, in 2017, both FII and DII are net purchasers in the Indian Equities Indian Capital Markets. On the other hand, Mutual Fund houses are sitting on cash, as high as 10% of the total corpus. Some popular funds which have performed exceptionally well, have stopped fresh inflows in funds in their schemes.

Valuations- When it comes to valuation, everyone talks about either the PE multiple or the Enterprise Value Multiple. However, here we will talk about two not very familiar yet useful valuation metrics for the Indian Capital markets

Market Cap to GDP- Warren Buffet cited this ratio or the metrics first. The rationale behind this is if it is more than 100% Indian Capital Markets are overvalued, and if it’s less than 70%, the markets are undervalued, and there is still a potential for upside

Looking at this, we can say that Indian Capital Markets are still not overvalued.

Cyclical Adjusted Price to Earnings Ratio(CAPE)- it is the sum you pay to gain Rs 1. As a relative valuation metric, it is being used. The preferred primary standpoint of the Shiller PE proportion is that it kills the fluctuations in the traditional PE ratio caused by varieties in net revenues amid business cycles. In the event when the multiple was more than 30, at that point, it’s an indication of stress, and it had happened that when the proportion was 30 of every 2008 and 1929, the world economy went into recession after that.

Morgan Stanley has concluded that if there is growth in earnings of Indian Inc., the Indian Capital Markets will give healthy returns. However, there will be many factors affecting this bull run like Government Policies, Interest Rates and World Economic Outlook. For the time being, the Indian Capital Markets have made a new routine, and the Indian Indices will be volatile and range-bound.