Indian Equities Trade At 100% Premium To Emerging Market Index

Indian equities are trading at their highest premium to the emerging market peers on expectation of a twofold jump in its market capitalisation and growth in corporate earnings in the next financial year.

The Nifty 50 Index’s trailing 12-month price-to-earnings multiple is at 22 compared with 11.45 times PE of MSCI Emerging Market Index, a premium of 100 percent, according to Bloomberg data. This is also the highest since 2000—the inception of the emerging market index.

The Nifty 50 Index offered returns of little over a percent despite more than 10 percent fall so far this year. Indian equities have always commanded a premium over the emerging market index, except in 2001 and 2002.

“An expectation of 15-20 percent growth in corporate earnings for FY20 and doubling of market capitalisation of India to $3-5 trillion in the next five to 10 years makes it a relatively attractive bet compared with rest of the emerging markets,” said Deven Choksey, managing director of KRChoksey Investment Managers. But the premium, he said, is expected to remain corrective in the near future till issues related to trade, crude price and growth in Europe have been addressed, which may take another six months.