Indian
equities have outperformed most global indices this calendar year so
far with the BSE-100 Index giving 27 per cent return as compared to
MSCI emerging markets at 6 per cent and MSCI World at 2 per cent,
says British brokerage firm Barclays. According to Barclays India
equity strategy report, returns on Indian equities have largely been
driven by earnings growth over the past 15 years. "In contrast
to this long-term trend, this year has witnessed a 27 per cent return
of which 19 per cent is due to multiples expansion. While this could
be due to raised expectations on the back of change in India's
political leadership, we believe that positive earnings momentum is
required to sustain these returns," Barclays said. Despite this
strong run, markets do not appear expensive yet with the one year
forward valuation ratios for the BSE-100 Index at or near its 10-year
average level. Further, comparing Indian equities to global equities,
we find that the Indian equities valuation premium (P/E) over global
equities is only 10 percent currently, which compares to the last
10-year average of 14 percent, the report said. The earnings remain
the key driver of the Indian market. Barclays analysis indicates that
over a 15-year period, earnings remain the biggest driver of market
performance, not only at the index level but also for sectors. The
forecasts for the Nifty suggest EPS growth of 16 per cent in FY'15
and 17 per cent in FY'16 post an insipid 9 per cent in FY'14 and have
exhibited positive momentum in past three months. Economic data is
also positive with increase in auto sales growth. While we believe
that markets could time correct in short term, positive earnings
momentum and strengthening economic data, gives us comfort on the
medium-term uptrend, it said. Sectors which have strongly
participated in YTD rally are industrials and financials industrials
and financials have witnessed the highest valuation re-rating (YTD
CY14) with 76 per cent of the cumulative returns in industrials and
74 per cent of the cumulative returns in financials owing to multiple
re-rating, according to the report. Multiple expansions have been
witnessed across most sectors except consumer staples which have
witnessed multiple contractions, it added.
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