India among the most expensive markets globally

Mumbai, Oct 9 | Updated: Oct 10 2005, 07:21am hrs
India has turned out to be the most expensive market in the world on price-to-book value (PBV) basis and the third most expensive on price to earnings (PE) basis. The market PE is at 21x 2005 earnings excluding the energy counters and PBV is at the multiple of 4.5. This is significant in the background of the finance ministers recent statements that the Indian markets are in a comfortable zone as far as PEs were concerned.

It was not so long ago that India was one of the cheapest markets in Asia. It is now among the most expensive after foreign institutional investors (FIIs) bought a net $8 billion of Indian stocks this year. Even if energy counters are taken into consideration, the PE at 18.5 is higher than the world average of 17.5.

The Indian markets are clearly expensive and FIIs are heading towards that realisation. Many are now considering booking profits in the Indian markets and parking them in markets with cheaper valuations.

In a recent note to its clients, one of the biggest foreign brokers investing in India said, Even strong performers Korea and Japan have the worlds second and third lowest PBVs. Defensive Singapore with the second highest dividend yield on offer in the world is a more reliable option compared to India.

Dealers at foreign brokerage houses stated that Thursdays huge Rs 1,700 crore net outflow (cash and F&O combined) from Indian equity markets by FIIs was a result of a note put out by the Singapore based brokerage house. Interestingly, India also does not feature in the top 10 markets that offer highest dividend yield.

FIIs, known for their penchant for large cap stocks, are raising their antennas as the key top stocks are trading above the PE multiple of 25 for 2005 and 4x2005 PBV. The list includes Ultratech Cemco, Ranbaxy, Bharat Forge, ABB, Hindustan Lever, Kotak Mahindra Bank and other expensive names with over 20x earnings like ICICI Bank, Bharti Televentures, ITC, HDFC and Larsen & Toubro.

However, not all FIIs agree that Indias valuations are overstretched. Based on the growth prospects, valuations do not look overstretched. Depth and breadth being provided by the Indian bourses and also the industry diversity are attractive for any FII, says Jignesh Shah, head of equities, ABN Amro Private Banking.