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Have NRI investors missed the boat?
Friday, 03 November 2006, 20:30 IST
Bangalore: "Have I missed the boat as an NRI investor in India's booming economy?" was the first reaction of Manibhai Patel in London as he confronted the news that Bombay Sensex had set a new record at 13,000 points October 30, 2006.
"Yes and No" is the answer. If Manibhai is thinking how investors on the Mumbai stock exchange have scooped good profits of up to 30 percent on blue chips this year, then he has missed the boat.
The Sensex set a searing pace this year shooting from 9,000 to 13,000 points in 10 months. This year started with the index touching over 9,000 and then it took off crossing 10,000 Feb 7. In 44 days it touched a new peak of 11,000. The bulls were on a rampage. Again, in under a month, it climbed to a new high of 12,000 points April 20.
On May 10, 2006, the sensex touched a high of 12,671 before closing at 12,612. But this was short-lived. What followed was literally mayhem. On June 14, the index touched a low of 8,929, a fall of 29.2 percent from its peak levels.
What has happened since has surprised the market. While everyone was talking of a reversal of the bull run where sporadic highs since June 14 were seen as nothing but minor reversals in a broader bearish phase, the Sensex continued with its northward journey, albeit with low trading volumes. The three-month rally that started in June 2006 initially seemed to lack strength and breadth. The index took just 87 trading sessions, gaining 42 percent since the lows of June to recapture the peak scaled May 10.
Come Friday, Oct 13, and bulls came charging with a new high. The sensex closed at a historic high of over 13,000 Oct 30. What next? Does Friday the 13th bring with it ominous signs of another meltdown or give hope of further growth? Does 13,000 mean the last peak?
Where do we go from here? Analysts talk of Indian stocks getting better valuation due to their better fundamentals and future growth prospects. The July-September results of corporate India have surpassed market expectations.
With P/E (Price to Earnings) Ratio of 22.62, the Indian market may look expensive but with growth prospects of corporate India at 15-20 percent plus, the valuations seem justified. In simple language, the stocks may be priced high but are still good value for money as the economy grows.
By the way, the economy posted a growth rate of over - hold your breath! - 10 percent for the last quarter. Industrial growth till August has been strong and direct tax collections have surged. Strong economic growth prospects, lower crude oil prices, low interest rates along with a stable rupee and inflation are all reasons for cheer.
At current price levels the Sensex P/E ratio stands at 22.62 marginally lower than 22.71 recorded May 10. With P/E ratio of 22.71, the market valuation of Indian stocks is higher than all of Asia Pacific markets. P/E of Shanghai-A of China is 16.2, Hang Seng of Hong Kong is 12.8, Jakarta Composite of Indonesia is 15.8 and KOSPI of South Korea is 10.7.
Experts talk about India achieving a sustained GDP growth rate of 7.6 percent for the next 35 years! This is a very robust growth rate. This is what the investor should be buying into. P/Es in retrospect would therefore look very attractive. Basically, India is a strong growth story led by domestic consumption rather than investments. This will serve as a great buffer against any external shocks over a period of time.
So what's the outlook for Manibhai? If he wants to remain invested for two-three years, Manibhai should be of buying into the value the Indian market currently provides rather than waiting for the market to correct and then invest. The sensex has only 30 market leaders but there are plenty of other quoted companies offering good growth potential and profitable investment opportunities.
Don't sell now. Hold on to what you have got. Some experts are predicting that the Sensex will scale 14,000 before the end of this year. Foreign Investment Institutions make their allocations in January-February 2007. By that time, the Sensex can possibly touch 14,000 when the budget is presented.
If you are willing to spend time and effort in research and have the required expertise, enter directly. If not, buy mutual funds. Consult investment advisors and let the fund managers do the hard work for you. The final word: "Manibhai, go ahead and invest! Indian economy is the second fastest growing economy in the world. You have not really missed the boat!"
Source: IANS
Source: IANS