India Is Losing Its Premium To Emerging Market Peers
India’s premium to its emerging market peers has fallen to a nearly 14-month low.
India's premium to its emerging market peers has fallen to a nearly 14-month low.
The ratio of price-to-earnings of NSE's Nifty 50 index and MSCI Emerging Market currently stands at 1.36, which is well below its July peak of 1.56.
The lower premium is in line with the fall in the price-to-earnings of the Nifty. However, this time around, while the multiple of MSCI Emerging Market index has recovered, it hasn't for the Nifty.
A reason for the delay in recovery for Indian stocks may also be the pending rebalancing of the New York-based MSCI’s global indices in May, the first time after domestic exchanges decided to end pacts that allowed local stock and index futures on overseas bourses.
“Until then what we are seeing is that the market is certainly turning short-term oversold,” Mohammed Apabhai, head of Asia-Pacific trading strategies at Citigroup Global Markets, told BloombergQuint in an interview. Foreign investors may not sell but they won’t buy and “we are actually seeing that in the bond, foreign exchange and equity markets”.
Moreover, the uncertainty around earnings growth for the next 12-months keeping the premium lower, said Chakri Lokapriya, Managing Director, TCG Asset Management.
Another factor contributing to the decline in price-to-earnings multiple for India is the decline in return on equity which is trading below historic levels. "An upward revision of the financial year 2018-19 expected earnings would set the stage for a reversal," Lokapriya said.