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Nifty at a premium to most of the other emerging economies
Aug 3, 2015


If index valuations are anything to go by, speculation seems to be dominating over the investing aspect. And there are high chances that over enthusiastic investors may fail to realize the first goal of buying low.

But whether one is buying low or high requires a skill of valuation. And it is here that most of the investors tend to get confused.

Indian markets are trading relatively cheap (as compared to other emerging markets) on the basis of trailing 12 months earnings. However, as one can make out from today's chart, if expected corporate earnings growth over next 12 months is anything to go by, Indian market is one of the most expensive among the emerging ones.

As per an article in Business Standard, at a price to earnings growth (PEG) of 0.73 times, the benchmark Nifty is trading at a premium to most of the other emerging economies. And considering that actual earnings have mostly fallen short of expectations in the past, the bullish sentiments could be even more misplaced. The unhurried pace of reforms does not offer much comfort either.

However, this does not mean that there are no attractive opportunities in the Indian markets as of now. Keeping in mind the Megatrends that are likely to work in India's favor, there are businesses that will get a tremendous boost for their growth. It is for this very reason that Tanushree along with The India Letter team keeps a close watch on stocks available at a PEG multiple cheaper than the index PEG. The PEG multiple makes sure that while we do recommend strong and high growth businesses, the margin of safety does not get compromised. While index valuations may be slightly distorted considering the wide valuation gap between the constituents, this approach we believe could be the best way to capitalize on such opportunities.

Data Source:Business Standard, Bloomberg
*Price to expected earnings growth over next 12 months

This Chart Of The Day was published in The 5 Minute WrapUp - The best time to invest in the Indian stock markets is...

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