Indian markets’ premium narrows after two months of sharp decline
MUMBAI: Indian markets’ premium to other global markets is narrowing after the sharp decline in the last two months. MSCI India is trading at a 3.86% premium over MSCI World, a sharp drop from a 10.93% premium it had on August 28, the highest level touched this fiscal.
Price to earnings (PE) ratio of M SCI India is at 17.21 while M SCI World is at 16.57, which makes India still one of the most expensive markets among peers. However, valuations concerns have started to worry foreign investors, leading to withdrawal of global funds from domestic markets.
In September, the Sensex has fallen 1.41% after a decline of 2.41% in August. So far in 2017, both Sensex and Nifty are up 17-19%, while MSCI India has gained 17.59% and MSCI World 9.52%. According to Macquarie Capital Securities India (Pvt) Ltd, foreign institutional investors (FIIs) are getting worried in general over Indian markets as well as financials trading at expensive valuations, and some of them have cut their overweight positions to neutral.
“Issues like job creation, weak state of the banking system and challenges in recovery in capex cycle were the most important concerns. While financialisation of savings is an emerging structural theme, current fundamentals don’t support such valuations, as per the FIIs,” said Suresh Ganapathy and Nishant Shah, analysts at Macquarie in a report on September 25.
Last month, FIIs sold around ₹99,327.02 crore of Indian equities, while domestic investors including mutual funds and insurance companies kept the liquidity inflow intact.
In September, domestic investors pumped about ₹79,160.5 crore into the local markets.
Stretched valuations, slow earnings recovery, fears of fiscal slippage, weakening growth and the US Federal Reserve’s hawkish monetary policy stance and rising geopolitical risks have impacted Indian markets in September.
Gross domestic product( GDP) dropped to a three-year low of 5.7% in the quarter ended June amid continuous earnings downgrades by analysts.
According to Bloomberg estimates, since beginning of FY17, the Sensex’s expected earnings for the current fiscal and the next have been slashed by 9.4% and 4.4%, respectively.