Earnings should rise for durably dearer shares

Bets on US capital costs could go wrong and hit foreign portfolio investors that have driven up Indian indices. Equity values should track corporate earnings rather than policy shifts

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Indian shares seem to have broken out of a range, blazing past to successive record highs lately. On Tuesday, the S&P BSE Sensex set a new record at 65,479 plus, up almost 14% from a recent low hit in late March. The sharp rise is somewhat surprising, given grim talk of a global recession amid rising rates of monetary policy. But then, India's economy has been a bright spot, with data showing growth of over 7% and inflation having cooled to mid-digits, even as key fiscal and external balances look in better shape and bank credit picks up in a market relieved of past burdens. Consumption and investment remain patchy, but a profit story has grabbed the attention of foreign portfolio investors (FPIs), which have bought equity worth over ₹1.1 trillion so far in 2023-24. In just over three months, that is. At this pace, foreign buying could easily top the ₹2.7 trillion plus recorded in 2020-21, which was the last time their flows into our equities were positive (and also the highest in decades). The price-earnings (PE) ratio of shares is currently below