India’s Price-To-Earnings Premium Over World, Emerging Markets At Low End Of Range: Credit Suisse
Indian equities outperformed global markets so far in May, but the nation’s valuation premium has fallen to the bottom of the range seen last decade, according to Credit Suisse.
In April, the domestic stocks had underperformed global equities by 5% in U.S. dollars due to the emergence of intense second wave of the Covid-19 pandemic, while Indian equities have outperformed global peers by 1.8% so far this month, Credit Suisse said in a May 6 report. “India’s total equity market capitalisation fell 1.4% in April, as compared to the 3.6% rise for the world.”
With some of the fears abating, the Indian market is up 1.2% in May month-to-date compared with a fall of 0.6% for global equities, it said.
Within the market, the broader indices continue to do better than the narrower ones, according to Credit Suisse. The broader markets are more ‘local’ in earnings exposure and more locally owned, and domestic savings get channelled there, the report said. Nifty has more foreign exposure but also more foreign ownership and may bounce harder as pandemic recedes, it said.
“The lockdowns tend to increase local savings, some of which make their way into the stock markets, like they did last year,” Credit Suisse said. "This mostly affects the small and mid-caps due to higher local ownership and lack of liquidity."
Nifty 50 and Sensex have more foreign ownership, and thus the relative performance counts more. “This has shown up in India’s price-to-earnings premium falling to low end of the prior range,” it said. “Comfort on a sustained fall in active cases and deaths could revive optimism on India's medium-term growth prospects.”
According to Credit Suisse, the 12-month forward earnings per share continued to rise in April. “EPS has seen broad-based improvement.” It expects some cuts in FY22 GDP estimate (1-1.5%) but would be backward-looking and less than the roll-forward impact, it said.
“We see fall in P/E for banks, cement, autos as an opportunity to accumulate.”