Valuations are inexpensive, says Morgan Stanley

For many analysts, Indian equities are now in ‘oversold' territory and at ‘attractive valuations'. Most analysts are recommending a ‘buy' on Indian stocks.

Morgan Stanley in a note on Thursday said Indian stocks are ‘cheap right now,' after a sharp fall in recent times.

The BSE Sensex has fallen 12 per cent from its February peak (18,523.78) and the NSE's S&P CNX Nifty by 12.5 per cent, mainly on account of policy inaction, the widening current-account deficit and higher interest and inflation rates.

“We have low conviction on margin recovery in FY13. The case is feeble because it rests on the relative performance of the current and fiscal account — two macro variables which are prone to the impulse of policy actions. Yet, we are bullish on stocks. This is because time teaches us maximum money is made on stocks not when the macro is great or the conviction in profit growth is high, but when equity valuations are inexpensive,” said Morgan Stanley.

Once-in-10-year chance

According to Ambit Capital, India appeared cheaper than it is at present “only once or twice in the last 10 years.”

Currently, the P/E ratio of the Sensex stands at 16.1 while NSE's Nifty is trading at a PE of 16.69.

Mr Saurab Mukherjea and Ms Ritika Mankar Mukherjee of Ambit Capital, in a report said: “India appears significantly oversold on a comprehensive set of relative valuation metrics based on book value, national income and cyclically adjusted earnings.”

According to Religare-Macquarie Private Wealth report, “Market unreliability and uncertainty is bound to continue and as we have said repeatedly — ‘Instability is the new stability' in the investment world. This, however, does not mean that investors should refrain from investing.”

Ambit further added that “the country will rarely look as attractive on valuations when the world economy perks up and when India's growth hits its cyclical peak (v/s the cyclical trough that it is at now).”

“There are many structural positives creating a tailwind for the country. No matter how much we try to shoot ourselves in the foot, at some stage we will come out of this funk,” said Karvy.

badri@thehindu.co.in

(This article was published on May 24, 2012)
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