The rating agency believes that equities in India seem expensive at current levels, given the current dynamics of the economy and the broader Asian context. Besides, the study adds, If the US and Eurozone economies begin to show signs of sustained recovery, there could be diversion of portfolio funds away from the Asian markets.
While expressing his bullishness about the performance, the Indian corporate sector in the next few years, Crisils chief economist Subir V Gokarn says, There may not be much upside left for equities, as the prices have increased sharply in the recent past. In December, year-end profit-booking by foreign institutional investors could lead to corrections.
The study shows that the valuations have increased dramatically as a result of rise in the market and price-to-earnings (P/E) ratio of companies in the benchmark BSE Sensex have moved from around 13.5 to over 17 in October. The consensus is that the P/E ratios when measured with respect to one-year forward earnings come to around 14. The rally was entirely driven by institutional investors with FIIs taking the lead. FII interest in debt investment waned and was replaced by growing interest in equities, the report added.