The correction seen over the last two months has made the Indian market more attractive for foreign investors vis-a-vis most Asian peers.
The relative premium of Indian markets has fallen to the lowest level in 15 months, prompting Credit Suisse to maintain its overweight stance and include the country in the ‘cheapest four’ club in Asia.
According to the foreign brokerage house, India’s relative premium to its Asian peers based on price to book value versus returns on equity has fallen to 4%, the lowest level since December 2011.
“Shanghai and India have now joined the cheapest four club, replacing MSCI Hong Kong and Australia. For India, this is the 15th time since our valuation model started on December 31, 2000 that the country has joined this club,” Sakthi Siva, head of Asia Pacific and global emerging markets equity strategy, Credit Suisse, said in a note on Tuesday.
The current premium is half the 8% level seen in December and compares favourably with 49% in 2007 and 32% in 2010.
This attractive valuation has made Credit Suisse bullish on India, along with China, Korea and Shanghai.
“While history is not always an accurate guide to the future, we note that in 13 of those 14 previous episodes, MSCI India outperformed MSCI Asia ex-Japan after 12 months with the exception in 2003. Overweighting a basket of the four most undervalued markets has outperformed MXASJ 90% of the time after 12 months even as we do emphasise that historically the success rate is lower in the first three months at 79% and in the first six months at 76%,” wrote Siva and Chik.
Siva believes that while last week’s Budget was disappointing, the outlook appears promising for Indian technology sector and that the Sensex can sustainably break above 20000.
Another foreign brokerage, Deutsche Bank, too, remains optimistic on Indian markets and expects Sensex to touch 22500 by the end of this calendar on the back of economic pragmatism shown by the government and perceived urgency in addressing policy issues, possible monetary easing by RBI, likely turnaround in corporate earnings and recovery in global growth.
“We believe that performance of Indian markets from here on will largely be determined by policy action,” said Abhay Laijawala, MD and head (research), Deutsche Equities.