The Hindu Business Line : Market View

The current popular belief in the equity marketplace is that value investing makes for the most profitable investment strategy, and analysts are obsessed with looking at Price/Earnings, or P/E ratios. The strategy of buying low P/E stocks has played out so successfully this decade that analysts think the only game is to buy a stock trading at a P/E discount, regardless of its long-term growth prospects. Similarly, at a country level many strategists have been caught out by the strong out-performance of the Indian equity market this year because of its apparently high P/E ratio.

However, what many financial market analysts are forgetting is that no particular style works all the time. If investing were as simple as that, then outperforming the market would be the easiest job. The problem is rules keep changing almost as soon as they are learnt. So, if everyone has learnt that buying low P/E stocks is the way to go, then the odds are that the time is up for such a strategy.

This may well be the message from the marketplace with stocks, sectors and countries offering growth at a reasonable price now beginning to out-perform. Investors are once again focusing on metrics such as return on equity and sustainability of earnings growth. In this regard, it should be no surprise that the Indian market has defied all P/E-based pessimistic predictions and has been a strong performer this year.

Morgan Stanley Growth Fund

Sustained liquidity flows have taken the bellwether indices back to record highs, with market valuations once again hovering at their 10-year averages. Valuations, especially among the large-cap stocks, now call for more realistic return expectations from investors. One key trend that sets the recent rally apart from the earlier bullish phase is that recent market gains have been less broad-based. While bellwethers have posted strong gains on a sharp re-rating of valuations, there has been limited participation from mid- and small cap stocks in the recovery. The more moderate valuations may open up select investment opportunities in the mid/small-cap space. However, investments in emerging businesses will continue to call for a long investment horizon on the part of investors and a tolerance to volatility in returns.

Franklin Templeton Investments

The future outlook for the equity market in the medium to long term remains bright. The softening of commodity prices will result in the earnings of some key constituent companies in the index take a breather and hence result in the index earnings to grow at a lesser pace than was witnessed earlier. Specific sectors and specific companies within the broader market are expected to do better.

Birla Sun life Mutual

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