Indian stocks fairly valued: ICICI report

Investors are set to witness the Sensex hitting the 15,000 point benchmark. However Indian securities markets, at present levels, are fairly valued, while its competitors from the emerging world such as Brazil and China are witnessing overstretched valuations, a report said.

The Global Investment Outlook for July, by ICICI Bank's private banking research division, has viewed that at present levels, the Indian equity markets are fairly priced and by the end of 2007, the markets should not be very high from its current levels. The equity markets are trading at P/E ratio of around 18 times FY08 earnings.

"We are of the view that 2007 could be the year of stock markets. Equity markets could consolidate at current levels and witness some corrections in short to medium term. At current levels, the market seems to have discounted FY08 earnings and any negative news on the earnings front could trigger a correction in the respective sector," the report said, while attributing rising current account deficit, reforms backlog and demand slowdown in the developed economies as major risk factors.

"Equities remain an attractive avenue over the long term on the backdrop of robust economic growth. Investors are advised to stick to their risk profiles and not get swayed by short term market volatility," it added.

The Bombay Stock Exchange Sensex is nearing its highest levels. On June 9, it was short of two points to 14,650, against its all time high of 14,652.09 points. The index, which has been range bound in recent times, has grown nearly 18 per cent since the last three months.

The report rated Chinese shares as the most expensive, as stocks are sitting on a price to earnings ratio of 50 and an average of over 37 in recent times, which is higher than other markets.

"Going forward, Chinese markets are likely to witness a correction as valuations look overstretched. Also, since most are global fund managers, who are underweight on China, there could be a shift from Chinese markets to other markets. This could lead to a correction in the market," the report mentioned.