The Hindu Business Line : Equity valuation could see upside of 10-15%: S&P

‘While global developments have made the environment more risky, strength of domestic demand is expected to keep the Indian economy on a relatively high growth trajectory’

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Mumbai, Dec. 5 International rating agency Standard and Poor’s said that valuations of Indian equity are currently at comfortable levels and they could see upsides of 10 to 15 per cent next year.

Further cut in key interest rates by US Federal Reserve — which is expected between December 2007 and January 2008 — could benefit India and other Asian stock markets, said Ms Lorraine Tan, Vice-President and Director Equity Research, Standard & Poor’s.

Presenting S&P’s 2008 Asia-Pacific’s Financial Markets Outlook report here on Wednesday, Ms Tan said, “We believe that the market is at a comfortable point with corporate earnings growth to support further upside in 2008.”

For the Asia-Pacific equity markets in general, the report predicted less room for values to move up in 2008 after generally strong performance in 2007.

The rating agency expects the overall growth rate in India to moderate in the next year. Mr Subir Gokran, Chief Economist, Standard & Poor’s, Asia Pacific, said, “while global developments have made the environment more risky, strength of domestic demand is expected to keep the Indian economy on a relatively high growth trajectory. The moderation to 8.1-8.6 per cent this year, reflects a soft landing, taking the Indian economy closer to its current trend growth rate, estimated at 8.5 per cent”.

Moderate inflation

About the overall growth in the Asian region, he said it could be around 7 per cent.

Inflation would be moderate in all Asian countries, except China. As China is the fastest growing economy, inflation is high. Otherwise inflation would be quite moderate, but it would be offset by rising oil prices, he said.

The regional integration has helped Asian countries to insulate themselves, to a great extent, from the US slowdown. Asian economies are moving from the traditional export market (US) and focusing on other markets. Following a large number of free trade agreements among Asian nations, exports from these countries within the region have increased. “The shift is from US dependence to inter-dependent trade,” Mr Gokran said.

The report said the probability of US going into recession is currently at 40 per cent. “US growth is slowing, but no signs of recession,” Mr Gokran said. This would impact the growth in Asia-Pacific region only marginally.

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