Stock market to end year with $10B inflow
By agencies   |   Thursday, 15 December 2005, 20:30 IST
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MUMBAI: The Indian stock market should end on a happy note this year as the net foreign fund inflows should cross $10 billion mark. India’s market capitalization at $525 billion is now way ahead that of China and Taiwan. India is also one of the most expensive markets in the world. A study by a foreign brokerage noted that in terms of price/book (4.8 times calendar year 2005), India was the third-most expensive market, while in terms of price/earnings (21.1 times calendar year 2005) it was the most expensive, though it could be said that the returns on equity (RoE) were high, the Business Standard said. Since there really have not been any significant earnings upgrades, the market has become even more expensive. At 9,200, the Sensex now trades at nearly 15.5 times the 2006-07 forward earnings and 3.1 times the P/B. But money continues to flow in. Analysts point out that the earnings growth is clearly slowing down. The Sensex earnings growth in the second quarter of 2005-06 (free-float adjusted) has been 23 percent, down from 31 per cent in the first quarter and still lower if exceptionals are adjusted for, the paper added. Even for a bigger sample of nearly 2,000 companies, operating profits have grown by just about 10 per cent compared with a growth of 13 percent in the June quarter. Besides, thanks to increases in the cost of raw material, operating margins have been under pressure with margins contracting on an average by 100-150 basis points. The second quarter GDP growth at 8 percent, driven by a 9.2 percent growth in manufacturing, has given a boost to the confidence of investors. Given this, foreign investors, whether private equity firms or pension funds, are not too concerned about near-term valuations, the paper said.

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