India’s performance average among global equities markets

THE Nifty hit 8271.05 on Wednesday, a near eight- month high. At these levels, the benchmark has now gained 2.9% — in dollar ter ms — so far in 2016.

With China under-performingbutRussiafaringexceptionally well with 26.4%, India has been a bit of a middler this year.

Most global benchmark indices have been average perfor mers too, including the Dow, which has put on 2.9%. The FTSE100 has lost ground as Eurostoxx.

Brazil, of course, has walked away with the honours, with returns of a mouthwatering 33.6%.

At current levels, the Nifty tradesatcloseto18.3timesFY17 estimated earnings and 15.2 timesestimatedFY18earnings.

However, as Kotak Institutional Equities point out, for the market to go up 10% by endFY2017--a reasonable expectation-it would need to trade at around 17X FY2018 estimated earnings. “That is possible but the market has rarely traded at those levels for long,” the brokerage observed in a report on Wednesday.

As market watchers have pointed out the markets have rallied on the back of some policy reforms---the Bankruptcy Code for instance---prospects of agoodmonsoonandbetterthan expected corporate earnings for Q4FY16. Some high-frequency data has been encouraging such as sales of cement and commercial vehicles.

Although chances of more policy refor ms are bright ---the GST could become a reality-- , India, right now appears a tad expensive. Bloomberg data show other peer markets like Indonesia and Taiwan are currently trading at multiples of 14.6 and 13.4, one -year forward estimated earnings, respectively. China, on the other hand, is trading 12.6 times.

As KIE points out, “on a bottom-up basis, either every stock would have to be 10% higher, which means some of favored stocks would have to trade at even higher multiples or some of the laggards would have to rise significantly”.

Moreover, a host of fund managers is ‘overweight’.In May, Morgan Stanley upgraded India within emerging markets (EMs) from ‘equal-weight’ to ‘overweight’.

Foreign investors have invested over $2.6 million in Indian equities in 2016, less than they have in Taiwan, Russia and South Korea which have seen anywhere between $3 billion to $5 billion move in.

Citigroup expects the Sensex to hit 27,000 by December 2016 on improving macro economics and signs of a bottoming in a few sectors. According to Axis Capital, earnings stabilising but the price-ear nings multiple is at risk. “Given the nature of our index, a Sensex EPS growth of around 15% per annum, over two years is achievable. “

Auto stocks including Tata Motors, Hero MotoCorp and Mahindra & Mahindra have been among the best performers on the Sensex contributing to 663.4 points of the total index’s gain of 903 points in the year so far.