Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Re-rating time - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jul 3, 2003

    Re-rating time

    It is not uncommon to hear that Indian equity markets are undervalued and one should look at building his/her portfolio with a long-term horizon in mind. Also, we know all the fundamental reasons why one should invest in Indian equities. However, certain facts and figures can strengthen this argument further.

    Source: Statistical Outline of India 2002-03
    Note: December 2002 onwards, P/E is derived

    To begin with, the BSE Sensex’s P/E is currently hovering around its lows (as evident from the graph above). Of course, here the comparison is not with the absurd and unjustifiable P/E levels achieved during the tech boom, but rather with the periods before and after the 2000 boom period. The Sensex currently trades at 13x trailing twelve-month earnings, which is lower compared to the monthly average of 16.9x since January-1998.

    Market cap. of leading economies
    Countries Mkt. Cap. (US$ bn)* GDP (US$ bn) % of GDP
    UK 2,200 1,600 138%
    USA 14,000 10,440 134%
    Singapore 120 100 120%
    Taiwan 300 300 100%
    Japan 2,250 4,000 56%
    Germany 1,100 2,100 52%
    China 525 1,300 40%
    India 115 500 23%
    *Approximate as in 2002

    This valuation of the index is not a fair representation of an economy, which continues to grow at an average rate of 5% compared to developed nations. Among developing countries, India is the second fastest growing economy. However, the growth in output does not seem to be reflected in terms of market capitalisation. Just to put things in perspective, India’s market capitalisation at the end of 2002 was just about 25% of its GDP as compared to China’s 40%, Taiwan’s 100% and USA’s 135%!

    (Rs mn) FY96 FY03 CAGR growth (%)
    Sales 688,164 2,316,162 18.9%
    Operating Profit/EBDIT 150,947 729,742 25.2%
    Net Profit/PAT 60,361 227,368 20.9%
    Market Capitalisation 1,449,162 2,512,128 8.2%

    Of course, valuations have to be supported with earnings growth. The CAGR growth of BSE-30 companies on different parameters are undoubtedly praiseworthy. In the last 7 years, compounded topline growth of almost 19% and a bottomline growth of nearly 21% could be the cause of envy for many a nation. Keeping this in mind and the fact that other developed markets are trading at much higher P/E’s, it is only time that Indian markets deserve a re-rating.



    Equitymaster requests your view! Post a comment on "Re-rating time". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    A Darkness Is Spreading Across the US (Vivek Kaul's Diary)

    Aug 22, 2017

    Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 22, 2017 01:14 PM