India may see sharp correction anytime, but is still the best market in EMs
May 12, 2017 | Source: CNBC-TV18
The recent vertical rise seen in Indian equity markets so far in 2017 pushed valuation above long-term averages and looks expensive on forward-earnings perspective, but it is most preferred equity story in the emerging market universe on a ten-year view.
“As for the stock market, GREED & fear remains constructive even if the market is certainly expensive on a forward earnings basis”
“The Nifty Index now trades at 17.5x one-year forward earnings, assuming 24 percent earnings growth, up from 15.4x at the beginning of this year and a 10-year average of 14.7x,”
The note also highlighted that the Indian market could have a sharp correction at any time given that GREED & fear’s long-only Asia ex-Japan portfolio, dominated by Indian domestic demand exposure, has gone vertical year to date.
“Still in India this week GREED & fear has found no reason to change the long-term constructive view on this market,” it said. Instead, the view has been strengthened by evidence that the Modi government is showing a renewed focus to address the one area where it has so far come up short and that is addressing the asset quality problem in the banking sector.
The continuing rise in the stock market year to date (YTD), and the resulting re-rating has been triggered primarily by ongoing strong inflows into domestic equity mutual funds with the biggest local domestic institutional investors now managing nearly USD 15 billion in equities each.
Domestic equity mutual funds recorded net inflows of Rs290bn (US$4.4bn) in the first four months of this year and Rs2.25tn (US$35bn) since Modi was elected in May 2014.