Blue-chip stocks cheap in India; cheaper in China

NEW DELHI: Despite all the talks about Indian stock market getting overpriced and foreign investors exploring other avenues, American investors still need to pay less than half the price of a blue-chip stock in the US for buying one here.

The bad news, however, is that stocks of an Indian blue-chip is nearly eight times costlier to its Chinese counterpart.

Indian stock market has appreciated by close to 40 per cent in the past one year, which is nearly double the 20 per cent gain registered by the US market. However, Chinese stock market has grown at a much stronger and phenomenal rate of over 200 per cent in the same period.

An analysis of the share prices of the top blue chips in the US, India and China shows that a blue-chip stock in the domestic market carries a price tag of 23 dollars (about Rs 947 per share) on average, as compared to about 55 dollars required to purchase one blue-chip stock in the US, while the same is available for just 2.9 dollars (22.09 yuan) in China.

The entire basket of one share each of all 30 firms on India's benchmark blue-chip index, Sensex, is available for less than 700 dollars (Rs 28,422.50) at their current prices.

The same amount will fetch just about one-third of the stocks from the Dow Jones Industrial Index, the Sensex counterpart and 30-share benchmark index in the US.

A portfolio of one share each of all 30 DJIA companies will cost 1,649.50 dollars at the current price levels.

However, an investor can buy a lager number of Chinese blue-chips for less than one-tenth of this price. A basket of one share each from all the 50 companies present on the Shanghai Stock Exchange's SSE-50 index costs just 145 dollars (1,104.88 yuan).

On another valuation metric of price-to-earnings ratio (P/E), which is considered as a measure on the basis of earnings potential of a company or a market, India is better placed than China.

While India's Sensex currently trades at a P/E of 21.09, it is more than double at about 45.0 for China. A market is c considered to be better valued if it carries a lower P/E ratio.

The DJIA index of the US has a P/E ratio of 17.4, while another benchmark index there, the Nasdaq Composite Index, had a P/E of 38.4 at the end of last month.

Blue-chips are among favourites for overseas investors, given their better brand value and financial health profile.

These are also known to operate profitably in the face of adverse economic conditions and make a sound investment decision for long-term investors, seeking to provide stability to his portfolio.

For both India as well as China, foreign institutional investors, a large majority of whom are from the US, have been a major driver behind their soaring stock markets.

The two have emerged at the forefront of global investors seeking overseas exposure to compensate for lower returns in the developed and maturing markets like the US and Europe.

India has seen a net FII inflow of over USD 4 billion so far in 2007, after a net inflow of about USD 8 billion in 2006 and a record high of over USD 10 billion earlier in 2005.

As compared to India where FIIs began actively buying stocks in 1990s, China came out with a programme aimed at attracting overseas investors to its equities in mid-2003.

While there are more than 1,000 FIIs in India, there are barely about 50 registered under China's Qualified Foreign Institutional Investment (QFII) programme. Still, China recorded over USD 10 billion QFII investment in 2006 and is estimated to have crossed USD 5 billion so far in 2007.