Despite the sharp sell-off seen in Indian equities since the government’s move to demonetise high-value currency notes, the Indian market trades at a premium to emerging market peers, data compiled from Bloomberg shows. At 25,860.17, the Sensex is trading at at a price-earnings multiple of 15.27 times 12-month forward earnings, while other emerging market indices are trading at anywhere between 6 and 13.5 times.
Since January the Sensex has lost 4.72% in dollar terms. On the other hand, Brazil’s IBOVESPA has gained 65% during the same period, and Indonesia’s Jakarta Composite Index gained 13.1% and Taiwan’s TWSE is up by 13%.
Indian equities continue to command a premium despite earnings estimates having been downgraded for nearly six quarters now. At the start of 2015, for instance, the one-year forward earnings estimate was Rs 1,817.8, while it finally came in at an EPS of just Rs 1,354.2. This essentially meant that while analysts estimated Sensex’ EPS to grow by 28.1% at the beginning of 2015, the growth was far lower.
Even in 2014, while consensus estimates at the beginning of the year projected Sensex’ earnings to grow by 18.4% during the year, they actually grew by just 11.8%. Similarly, in 2013, while analysts estimated Sensex EPS to grow by 24% at the beginning of the year, the growth was 9.3%.