Mumbai: By at least one measure, Indian equities look attractive relative to their regional peers even after posting new records in the new year.
That’s the view of BNP Paribas, which forecasts the benchmark S&P BSE Sensex to post its third annual gain in 2018, helped by a revival in company earnings and economic growth.
The euphoria in equity markets worldwide has left the Sensex trading at 3.2 times book value, not cheap in absolute terms. But with the MSCI Asia Pacific Index trading at 1.73 times — the highest level since 2008 — the gap between the two gauges’ ratio is the narrowest in about a year.
“India has traditionally traded at a premium to Asian peers because of a better return-on-equity profile, but the price-to-book premium that India enjoyed has narrowed,” Abhiram Eleswarapu, head of India equity research for BNP Paribas, said in an interview in Mumbai. “It’s difficult to make a statement that India is expensive to its Asian peers.”
The Sensex will likely end the year at 37,500, he said, implying a 8 per cent advance from Tuesday’s close. The index rallied 28 per cent in 2017 in one of Asia’s best performance as a slew of economic reforms including implementing a nationwide sales tax and a funding plan for state lenders prompted Moody’s Investors Service to boost the nation’s rating to the highest since 1988.
If stocks maintain the upward trajectory, it won’t be a “smooth line of returns,” Eleswarapu said. There’ll be “a few shallow corrections, with the year likely to end with positive returns,” he said, maintaining an overweight stance on the nation’s market.
Earnings of companies in the MSCI India Index may rise by 15 to 20 per cent in the financial year starting April 1, as businesses have recovered from the disruption caused by the new sales tax implemented in July, he said.
BNP expects a profit growth of just under 10 per cent in the current fiscal year.
