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The Indian equities market is still cheap despite a sharp rally over the past nine months, given the earnings promise.
Estimates compiled by Bloomberg show that the earnings of Sensex basket companies are likely to grow by 16 per cent in CY2015. This translates into an earnings per share estimate of ₹1,830. Consequently, the index is trading at a price multiple of 14 times its 2015 earnings.
In comparison, Thailand’s Thai SET 50, which is likely to see lower earnings growth of 14 per cent, is trading at a multiple of around 13 times.
Taiwan’s Taiex, whose earnings are estimated to increase by only 9 per cent, is trading at 14 times. The only country in the Asian pack that is trading cheaper than the Sensex, but with higher estimated earnings growth, is Indonesia’s Jakarta Composite Index.
The companies in this index are expected to see 18 per cent earnings growth in 2015. At current levels, the index discounts next year’s earnings by 13 times, slightly lower in valuation compared to the Sensex, possibly due to the political turmoil in the country.
Developed markets, including the US, UK, France and Germany, are trading at a price-to-earnings multiple of 12-15 times next year’s earnings.
The US S&P 500 index and Japan’s Nikkei are at the higher end of the valuation band, at 14.7-15 times.
However, these markets are expected to see their companies report only 9-13 per cent growth in the ongoing calendar year.
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