Despite the sharp sell-off in Indian equities since the government’s move to demonetise high value currency notes, the Indian markets trade at a premium as compared to the emerging market peers, data compiled from Bloomberg shows. At 26,230.66, the Sensex trades at a price-earnings multiple of 15.4 times, while most emerging market indices are trading between 6.5 to 14.6 times.
Since January, the Sensex has lost 2.64% in dollar terms. On the other hand Brazil’s IBOVESPA gained 57% during the same period , Indonesia’s Jakarta Composite Index gained 16.6% and Taiwan’s TWSE was up by 13.6%.
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 R1,817.8, while it finally came in at an EPS of just R1,354.2. 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%.
Currently the market is in correction mode since November 8, due to heavy Foreign Portfolio Investor (FPI) selling. FPIs have sold shares worth $2.6 billion in November, which is the highest in any month this year. FPIs have been net buyers in seven out of eleven months in 2016.