Indian stocks best performers among key global mkts in ‘17

Coimbatore: The Indian stock market has emerged as the best performer among BRIC (Brazil, Russia, India, China) countries and has beaten its peers in developed markets such as the US and Japan in 2017.
The Indian markets gained 28% during the year in rupee terms, the best performance among key global markets in local currency terms.
India’s share in the world market capitalisation (market cap), at 2.3%, however, dropped below its long-term average of 2.4% due to the strong global rally in stocks.
Over the last 12 months, world market cap has increased 53.5% ($35.7 trillion), while India’s market cap was up 52%.
But the market cap-to-GDP ratio surged to an eight-year high of 89% (based on FY18 estimated GDP or gross domestic product) and is well above its long-term average.
The average market cap-to-GDP ratio for India is 78%.
The ratio, however, is still below the highs hit during 2007-08 and 2009-10.
The ratio surged to 103% when the Sensex raced past the 21000 points mark for the first time ever in January 2008.
It slumped to a low of 55% in 2009 after the rout in stock markets across the world following the global financial crisis. For 2017, MSCI EM (emerging markets) that soared 34%, India’s Sensex (up 28%), Brazil (27%), South Korea (22%) and Indonesia (20%) were the best performers among key global markets and stock indices in local currency terms.
The Russian stock market however slumped 16% during the year.
Valuations of Indian equities remain rich. The Sensex trades at a 12-month forward P/E (price-equity) multiple of 19, a 10% premium to the long-period average of 17.3. A forward PE of 19 means that the investor is willing to pay Rs 19 for Re.1 of future earnings. Sensex P/B (price-book value) of 2.8 times is also above its historical average.
“At the current trailing P/E of 23.3 times and forward P/E of 19 times, we see limited triggers for further re-rating, unless accompanied by a boost in earnings,” analysts at Motilal Oswal Securities said. All the key stock markets in the world continue to trade at a discount to India.
However, India’s RoE (return on equity) remains superior to most EMs, an important differentiator for valuation premium. The Sensex trades at a 12-month forward RoE of 14.9%, which is below its long-term average.
Over the last 12 months, mid-caps have delivered 47% returns, as against 29% by the Nifty. Also, over the last five years, mid-caps have outperformed the Nifty by 70%. Mid-caps now trade at a 72% premium to the Nifty in terms of P/E. In all, 44 out of the 50 stocks on the Nifty closed higher during 2017.