InvestorQ : Does the Indian stock market look overvalued after the recent rally in the stock markets?
ishika Banerjee made post

Does the Indian stock market look overvalued after the recent rally in the stock markets?

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5 months ago
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According to data from Bloomberg, the forward price to earnings P/E ratio of MSCI India is 22.4X while MSCI EM is 15.12X. While that makes India expensive, India has always traded at a premium over emerging markets. What is interesting is that the MSCI India is at a premium of 47.95% over MSCI EM; lower than the premium of 52.27% in Sep-20.

Since late Oct-20, global flows are gravitating towards emerging markets, including India. However, other EMs are also attractive now and that has made India’s premium more palatable. It also needs to be noted that the ROE for MSCI India is expected at 13% in 2021, up from 9% this year. Indian ROE expansion is a multiple of EM ROE expansion.

The US Fed, ECB and Bank of Japan have expanded their balance sheets by $7 trillion this year and that liquidity surge has been crucial to the emerging markets rally as cheap money chases equities. MSCI India has gained 80% since Mar-20 in dollar terms at a time when and MSCI EM is also up 65%, in dollar terms.

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