The Indian markets seemed to have started to get on the roll again. With this happening, investors usually to ask, ?How long will this last?? This 1,000 point surge in the past six months has also pushed this question to the fore. And looking at global pointers, the overall response is that stock market growth is here to stay.
?It is difficult to time the market. But overall global comparisons suggest that the market will have a steady climb? says Bharat Shah, managing partner and CEO of ASK Investment Managers. The real Indian GDP growth forms 3.25% of the global output and on a purchasing power parity basis it is around 8%. In this light, equity investments form only 2% of the global investments. This low number of equity investments has to catch up as other countries have a higher number, says Shah.
The Indian market capitalisation to GDP ratio has climbed over 100% and even the NSE stocks are worth more than a trillion dollar now, this could put global investors into a caution mode. These are the numbers sported by evolved markets like Japan and Korea which have a similar ratio. Developed markets, which have low growth rates, have a higher ratio.
China on the contrary has a 25% market capitalisation to GDP ratio making it more exiting. ?Not exactly, as the Indian GDP figures are not truly representative. The parallel economy that has a role in stirring up the ?white? economy is not considered?, says a fund manager. This, if accounted for will lower the ratio. With the Indian price to earnings ratio, too seems to be reasonably placed amongst global peers, especially when one considers a high return on equity level (above 17%) recorded by major Indian companies.
China, another country witnessing stupendous growth has a P/E ratio of around 40 times its 2006 earnings. All eyes therefore are on the earnings growth emanating in the next quarters and how they compare with global peers.