Indian markets are inching higher on hopes that the government has finally got its act in place and the country will now be zooming on the growth highways, which the government promises to create in the future. More than domestic investors, be it retail or fund houses, global investors seem to be taking a liking towards India. Foreign institutional investors (FIIs) have already pumped in over $20 billion in the country in 2012, the second highest inflow in the country since 1993.
This euphoric buying has resulted in India becoming one of the costliest markets in the world. Based on expected price to earnings (P/E) ratio, BSE Sensex trades at 15.77 times its CY12 estimated earnings per share. This makes it the second most expensive market among the top exchanges in the world. India is the costliest market among the BRICS nation and trades at a substantial premium to China. India trades second only to Japan’s Nikkei which trades at a P/E of 17.91. Even if we take next year’s valuation (FY14) which captures the growth estimates of companies compromising the respective indices, India still ranks as the second most costliest market after Japan (See table).
| Price/Earnings | CY12 | CY13 |
| Nikkei 225 | 17.91 | 14.79 |
| Sensex | 15.77 | 13.80 |
| Straits Times | 14.33 | 13.44 |
| Swiss Market Ind | 14.19 | 12.92 |
| S&P 500 | 13.56 | 12.27 |
| South Africa JSE | 13.87 | 11.78 |
| DJIA | 12.48 | 11.63 |
| FTSE 100 | 11.62 | 10.67 |
| Hang Seng | 11.62 | 10.67 |
| Brazil Bovespa | 16.50 | 10.65 |
| DAX | 11.01 | 10.59 |
| AEX-Index | 11.93 | 10.53 |
| CAC 40 INDEX | 11.24 | 10.40 |
| Euro Stoxx 50 Pr | 11.18 | 10.31 |
| FTSE MIB InDEX | 11.37 | 9.95 |
| SHANGHAI SE COMP | 9.76 | 8.59 |
| Russia MICEX | 5.76 | 5.62 |
| Source: Bloomberg |
The recent rally in Indian markets has come because of the government’s spate of reforms announcements, especially the opening up of foreign direct investment in multi-brand retail. These decisions display the government’s proactive stance and its willingness to bite the bullet.
These measures are, however, unlikely to change the ground reality overnight. The fact that the country is on the verge of being downgraded and has been compelled to take drastic measures highlight the pressures on the economy. On most economic parameters, the country is on a weak wicket.
Unlike record FII investments in 1993 which came in when results of the then Finance Minister and current Prime Minister, Manmohan Singh’s path-breaking reforms were visible in the economy, this time around money has come in only on announcements. The fact that there are few economies worldwide which are growing the way India is, has helped the country attract foreign money.
Going by the recent upgrades by some of the leading broking houses, we still have some steam left in this rally.
