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Markets: India amongst the top - Views on News from Equitymaster
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  • Oct 29, 2003

    Markets: India amongst the top

    The Indian bourses have been on fire over the last 6-7 months and while major world indices have started showing signs of tiring during the last 3 months, the Indian indices continue to rise unabated (barring the recent correction). The chart below indicates the movement of some of the indices over the last 3 months, which shows that BSE Sensex has clearly outperformed other world indices and that too by a wide margin over the last 3 months. On the one hand, where the FTSE has given a measly 3% return on the index during this period, the Sensex has returned a neat 26%. Other indices like Nasdaq (9%), Straits Times (8%), Taiwan Weighted (9%) and Hang Seng (16%) have underperformed the Indian capital markets substantially.

    The huge foreign capital that has found its way into Indian equities has provided the biggest supporting hand in the current rally. In the current fiscal till last week, this class of investor community had pumped in close to US$ 3.5 bn into Indian equities pushing the markets to heights at speeds which left even the seasoned market players gaping. Coupled with this were the good monsoons, which improved the growth prospects of the Indian economy. This further attracted retail participants into the Indian markets cementing the strength of the rally further. But the speed at which the markets have risen, especially the Indian markets, have forced many to sit back and think again. Have the Indian markets run up too-fast-too-soon?

    It must be noted that Indian equities had remained undervalued for quite a long time vis--vis their international counterparts. While the Indian markets still continue to trade at about 15x-16x FY04E earnings, majority of the world markets continue to trade at 20x or more. Moreover, with the improvement in corporate performance most likely to continue over the next few years, the valuations of Indian equities do look attractive. The lower interest rate scenario, various reform initiatives and increased government spending will further augment growth.

    However, at the same time, it must be remembered that FIIs had a major role to play in the current rally. And now from hereon, as the universe of stocks gets smaller and smaller owing to the already high ownership, this investor class would find it increasingly difficult to find stocks attractive enough to invest in amongst index stocks. Just to put things in perspective, FII holding in housing major, HDFC, is already at over 75%. Others include ICICI Bank (68%), Zee (62%), Satyam (60%)and Infosys (48%); however, the list does not end here. This might force them to look at stocks outside the BSE-30 and the NSE-50 more frequently, which could provide them with better growth. Thus, from hereon, while the broader markets could consolidate for sometime, it would be more of a stock specific story and a bottoms-up approach would help investors earn better results on their portfolio.



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