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India attractive but expensive
Thu, 19 Aug Pre-Open

The steep valuations of Indian stocks may give you the impression that they are enticing investors globally. But the fact is that global fund managers are choosing to turn away from India. This is visible in the 'underweight' positions that global funds have on their India portfolio. This also means investments in India currently enjoy a smaller proportion of the emerging market holdings. On the other hand, emerging markets featuring as 'hot' investment destination are Russia, Turkey, Brazil, Indonesia, Thailand and even Mexico.

However, if we compare the growth rates for emerging markets, India and China lead the pack. Keeping in mind that China's growth is expected to slow down as it rolls back its economic stimulus, India certainly emerges stronger. Also thanks to its young population, India has a lot going its way. A young growing middle class and a high consumption growth can do a lot of good to companies' growth potential. The government is also doing its bit by focusing on structural reforms. The ongoing globalization efforts are aimed at making India a popular business destination. However, none of these seem to be exciting the global funds enough to have a larger exposure to India.

The reason being expensive valuations. The Indian markets are currently trading at a forward price to earnings multiple of 17 to 19 times. This makes it one of the most expensive markets in the emerging world. The Indian markets are not just expensive vis-à-vis their peers but are also currently trading at their historic peaks.

It is true that India is poised to be one of the fastest growing economies. But the Indian markets already seem to be pricing in the stellar growth. So, while it continues to be an attractive investment destination, we cannot expect huge investments until it looks cheaper. This would happen only when the corporate profit growth keeps pace with the overall GDP growth. Or we will have to wait for the markets to crash again. Either ways, retail investors too could pick up some cues from these and hold on to their investible funds. That is until more margin of safety comes their way.

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Mar 22, 2018 11:43 AM