India most expensive emerging mart

Even as the Sensex surges past 11000 points, Indian equities continue to worry market participants owing to high valuations. The Sensex is trading at a price-earnings multiple of 20.24 times, the highest valuation among emerging markets.

The Sensex is also more expensive than some of the developed markets "" the Dow Jones Industrial Average and FTSE-100 currently trade at multiples of about 18.5 and 15 respectively, based on trailing earnings.

"If you look at historic valuation, of course, the Indian markets may be at the same level as some of the American markets, but the difference is in the forward earnings projection. The US economy is growing at 3.5 per cent and in India it is likely to be around 9 per cent. I expect Indian companies to grow their earnings by 16 to 25 per cent over the coming year, giving us a forward PE of around 16 which is not that expensive."said Andrew Holland, executive vice-president at DSP Merrill Lynch Securities

On a trailing 12 month P/E basis , emerging markets such as Brazil and Russia trade at multiples of around 12 and 22 respectively.

Among the Asian markets China trades at a multiple of 18.5, while Taiwan and South Korea trade at around 13.5 and 11 multiples respectively. Thailand seems to be the cheapest, trading at a multiple of 7.40.

Going forward, the multiples of some emerging markets look attractive. Some markets, which look fairly priced going forward, are Philippines, Thailand and South Korean.

The Philippines market is trading at a multiple of 9.9 to FY07 earnings estimates, while South korea and Thailand are trading at 8.9 and 9.4 multiples respectively to FY07 earnings. Indian market is also expensive going forward,trading at a multiple of 16.85 to FY07 earnings.

A COSTLY AFFAIR
Countries	Index	Current	2007F
India	Sensex	20.24	16.85
Singapore	Straits Times	15.20	14.28
Hong Kong	Hang Seng	13.21	13.30
Malaysia	KLSE comp	12.41	12.79
China	Shangai composite	18.50	12.01
Taiwan	WeightedPr	13.60	10.53
Indonesia	Jakarta comp	14.20	10.44
Philippines	Manila Comp	11.70	9.88
Thailand	Bangkok SET	7.40	9.36
South Korea	KOSPI	10.90	8.92
Source: DSP Merrill Lynch

The re-rating in Indian equity has been driven by massive foreign portfolio flows in the country pretty much in line with inflows into other emerging markets.

This year till date, fund flows in emerging markets have crossed $20 billion, more than the record set last year, according to Emerging Portfolio Fund Research. FIIs have made purchases of around $350mn (Rs 15,623 million) in Indian equities this year thus far.

Over the last one year, the MSCI Brazil Index has been the best performing market delivering returns of 83.29 per cent. The MSCI Latin American Index gave 77.45 per cent returns during the period while the MSCI Emerging markets index posted only 48 per cent returns.