Readings: Equity Valuations, Get India Right, Lessons from Japan
- Morgan Stanley: India Equity Strategy - The Valuation Debate
Indian equity valuations appear tolerable at 16.5x F2008E earnings (BSE Sensex measured using Morgan Stanley estimates). However, we see four key issues with the multiple: (i) rising long rates; (ii) the global multiple and India’s relative position; (iii) the low valuation dispersion across sectors and stocks; and (iv) earnings revisions. In this context, valuations still appear vulnerable.
. . . one should abandon any notion of “an average Chinese customer” or “an average Indian customer.” In each country, even the middle of the income pyramid consists of more than 300 million people encompassing significant diversity in incomes, geographic climates, cultural habits, and even language and religious beliefs. Because of this diversity, market success in China and India is rarely possible without finely segmenting the local market in each country, developing a strategy tailored to the needs of the targeted segments, and exploiting a strong position in one segment to enter and occupy one or more adjacent segments.
Japan’s exporters, facing severe erosion in profitability, turned to their treasurers to create additional income by engaging in speculative trades. Something similar is now happening in India.
It’s bizarre that just when old industrial companies in India are scouring the world for leveraged-buyout targets, some of the new-age software-services companies are paying out more money as dividends than they are setting aside for investments.
If the appreciation in the rupee turns out to be even half as rapid as it was in Japan, the exchange rate might climb to 30 rupees to the dollar in three years.
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