Indian bourses continue to be one of the most expensive in terms of the price-to-earnings (P/E) ratio in spite of a sharp sell-off in emerging markets this year. Although the sell-off this year has not made much impact on Indian bourses, making the Sensex one of the least affected in Asia.
The Sensex has lost merely 0.82% since the beginning of the year. This is in contrast to Shanghai Stock Exchange Composite Index, which has lost 23.1% in dollar terms so far in 2018. With a 12-month P/E of 22.14, Sensex is the second-most expensive market among emerging economies, behind the Mauritius Stock Exchange SEMDEX Index. The P/E ratio of SEMDEX Index is 23.32. Other EM exchanges with high P/E ratios are Brazil’s Ibovespa, Tunis Stock Exchange and the Slovak Share Index, at 20.04, 19.13 and 18.72, respectively. The best performing market in Eastern Europe is Ukraine’s PFTS index, yielding 78.08% returns, while due to hyper inflation, Venezuelan’s stock market gave152.3% returns.
Ajit Ranade, chief economist, Aditya Birla Group, during a Morningstar investor conference, said risks to India’s market could be due to tightening financial conditions, EM contagion, shortfall in GST collections, and widening CAD.
However, Mark Mobius, founder of Mobius Capital Partners, is optimistic about the emerging markets, including India. Although the emerging and frontier markets have lost this year, the average decline for EM has been 34% and the average bear market trap is not more than seven months, he said. “There were only six EMs in 1987. Now there are over 70 investable EMs,” added Mobius.
ON FPI investments in India, Nilesh Shah, MD, Kotak Mahindra AMC, said investors in the US are not worried about oil, rupee or the steep fall in the prices of small- and mid-cap stocks, but about MSCI, ease of doing investment, and elections. “Since most investors are underweight on China, such a massive increase in the weight of the index will have material impact on portfolio allocation. India needs to assure investors,” added Shah.
So far this year, FPIs have sold equities worth $5.5 billion and over $11 billion in both equities and debt, making FPI monthly sell-offs the highest in two years. “If you look at three-year data, then India has underperformed in comparison to other EM countries. However, now EMs are approaching the target prices as they have corrected a lot,” said Ridham Desai, managing director, head of India Research, and equity strategist for India at Morgan Stanley.