Mumbai: The end of political uncertainty may have made India more attractive for global investors, but experts suggest the euphoric rise on the indices has made them think twice before dipping their toes in the country.
The thumping victory for a Congress-led government surprised the markets, which opened the week breaking all records for a single-day gain. The Sensex added over 2,100 points that day; the Nifty over 650 points.
This has caused the Indian market to become more expensive than many other emerging markets, say experts.
Also, the change in outlook towards India would have had more of an effect if the global perspective on India was sharply bearish.
"But investors are only modestly underweight India and India now trades at roughly a 40% premium to emerging markets (versus 10-year average premium of 24%), so we expect only modest reallocation to India," Michael Hartnett of Bank of America-Merrill Lynch wrote in a report.
After Monday's rise, India was trading at a price to earnings (P/E) multiple of 17.4, compared with Brazil's 11.5 and Russia's 7.8. Even China was far behind, trading at 13.5 times its one year forward earnings. This made India the most expensive of the BRIC nations.
FIIs have turned sellers for the last two trading sessions after buying nearly $1 billion on Tuesday. On Wednesday, they were net sellers for Rs 234 crore and on Thursday, they were marginally in red, net-selling equities worth Rs 2 crore. The Nifty ended in the red for the third consecutive session, losing 113 points or 3%.
Ajay Parmar, head of research at Emkay Global Financial Services, attributes the expensive valuation to the conservative earnings per share and the fact that markets are still in a honeymoon period after the election results.
"The valuation front presents a bit of a worry and investors might wait for lower levels before entering. However, there would be some buying from the long-only funds," he said.
A market expert, however, said the nature of India's economy justified such a premium. "India is a consumption-led economy as compared to Brazil and Russia, which are commodity-based. So a premium in this case is justified since the political uncertainty has disappeared. FIIs might yet pull the market to a higher level," he said, requesting anonymity.
But for that money to find its way into India, the hopes from the new government would have to be met, says Deepak Jasani, head of retail research at HDFC Securities. "FIIs would be comfortable in paying a premium for a stable economy and government as compared to other emerging markets. People want to invest so long as the valuations remain attractive, as evident from the large buying on Monday and Tuesday. The really large inflows would come through only if the budget excites these investors. If so, one might find they are more keen to come in even at higher levels," said Jasani.
Friday, May 22, 2009
No comments:
Post a Comment