Mark Mobius, hailed as the Indiana Jones of emerging market investing, said he was not unduly perturbed about rich valuation multiples being assigned to Indian companies, as traditional valuation metrics often overlooked the future growth potential of many of these firms.

“While the current price-to-earning ratios may seem high, they primarily reflect past performance and don’t fully capture the prospective rapid growth in earnings, potentially making Indian stocks more attractive in the long term,” Mobius said in a blog post that highlighted his month-long sojourn to India last year, covering nine cities, including Mumbai, Bengaluru, and Hyderabad.

Investment timing should focus on solidly growing companies, as there are always opportunities to find firms that excel regardless of the market’s overall state, he said.

‘Balanced entry point’

Mobius said he is often asked about the right time to invest in Indian equities, which are currently labelled “overvalued” by some analysts.

For newcomers to the investing world, particularly those unable to research individual stocks, Mobius recommends choosing a well-diversified mutual fund managed by experienced and reputable investment professionals.

“This approach offers a balanced entry point into the Indian market,” he said.

The month-long trip, added Mobius, had revealed the incredible depth and variety of India’s cultural landscape. “I met many enthusiastic entrepreneurs and software engineers and was deeply impressed by their positive spirit and enthusiasm to improve their companies and work,” he said.

The benchmark Nifty was up 20 per cent in CY23, outperforming MSCI EM by 11 percentage points in US dollar terms. The gauge is now trading at 20.5x one-year forward price to earnings multiples, which is higher than the past 10-year average of 17.5x. Relative to other emerging markets (excluding China), the premium is at 67 per cent.

Jefferies has set a December target of 24,000 for the Nifty, which is 11.5 per cent upside from current levels.

“Current market multiples can sustain given the strong domestic flows and expectations of improved foreign inflows during CY24. Aside from the global risk-off, key risks to the equity markets can come from a possible increase in the capital gains tax rate and a possible unstable government after the upcoming national elections,” the brokerage said in a note on January 1.

Market pundits continue to remain bullish on Indian equities despite their rich valuations but advocate a pivot to large-cap stocks. India remains in a sweet spot given the macroeconomic stability, benign commodity price outlook, and corporate earnings momentum.

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