Mumbai: A plunge of at least 50% plunge in Indian shares has priced in a greater fall in economic growth than forecast, beating down share valuations to attractive levels, a top executive at France’s Shanti Asset Management said. “From a valuation standpoint, let us dare repeat once again that the market has never been as cheap with the Sensex PE near nine times next fiscal year,” said Eric Mookherjee, president of Shanti Asset Management.
“As for the small and mid caps, they are often twice as cheap, frequently still growing with double-digit figures,” Mookherjee, who oversees about $4 billion (Rs19,400 crore), including $47 million in an offshore India fund, said in an email on Wednesday.
He said the flight of foreign capital from Indian shares easing, direct investment positive and capital inflows from expatriate Indians increased in November. Founding families of listed groups were also increasing their investments, a proof of the market’s value, he added. After rising a stunning 500% in five years to 2007 end, Indian shares are down by more than half this year, slammed by foreign portfolio outflows and a slowing economy. Shares of medium and small-sized firms have seen sharper declines with the BSE Mid-Cap and BSE Small-Cap indices plunging 70% and 75%, respectively.
The 30-share index traded at a 12-month forward price to earnings multiple of 9.86 times, far lower than the over 20 times at the start of the year, while the mid-cap index traded at 5.79 times, according to Thomson Reuters data. “We are expecting a slowdown next year, with year-on-year growth near 6%, and are forecasting a structural growth rate of around 7%. The market has already priced in an even greater fall,” Mookherjee said. He added his firm was selling small-cap stocks and investing in “larger-caps that are more sound and better equipped to weather the crisis”.
He said the India fund had maintained investments in Bharat Heavy Electricals Ltd, whose order books mainly contained government contracts, and ICICI Bank Ltd, which was trading below its book value. Reliance Industries Ltd, Wipro Ltd and Axis Bank Ltd were also part of the fund’s top-five holdings, its factsheet for November showed.