Indian stocks overpriced despite 17% decline: Mark Mobius

Mark Mobius,

According to Templeton Asset Management’s Mark Mobius, Indian stocks are “still somewhat overpriced” even after the 17% decline in the nation’s benchmark equity index this year (2011 September)

“Generally speaking, it’s difficult to find cheap stocks in India,” Mobius, who oversees about $50 billion as executive chairman of Templeton’s emerging markets group, said on Thursday in an interview broadcast on Bloomberg UTV. “Better earnings will make Indian stocks more attractive.”

The BSE India Sensitive Index has dropped the most in Asia this year on concern a slowdown in the US and Europe’s debt crisis may erode company profits already threatened by the most aggressive interest-rate increases among major Asian economies. Companies on the gauge trade at 14.3 times estimated profits, compared with 10.1 times for the MSCI Emerging Markets Index.

“We are probably nearing the end of the tightening cycle,” said Mobius. Policy makers are “beginning to be concerned about growth,” he said. The Reserve Bank of India will announce its next policy review September 16, two days after the government releases its monthly inflation data.

The central bank has raised borrowing costs 11 times since the start of last year to damp living costs that are climbing the fastest among the Brics nations of Brazil, Russia, India, China and South Africa. Earnings for some 47% of Sensex companies missed analysts’ estimates in the quarter ended June, compared with about 33 percent in the previous three months.

India’s benchmark wholesale-price inflation in July rose 9.22% from a year ago, staying at more than 9% for an eighth straight month, government data show. Still, the latest reading was the lowest in eight months.

“Inflation at this stage is beginning to moderate but the concern going forward will be growth,” said Mobius.

India’s $1.7 trillion economy, where the World Bank says more than 75%of the 1.3-billion population lives on less than $2 a day, expanded 7.7% in the three months ended June from a year earlier, the slowest pace of expansion in six quarters. Slowing growth may prompt the Reserve Bank to pause raising rates, FM Pranab Mukherjee had said.

“India should be growing at 7 or 8% in order to achieve the kind of living-standard increases that you need in the population,” Mobius said.

Overseas funds withdrew a net $2.1 billion from Indian stocks last month, the most since October 2008, according to data from the nation’s market regulator.

That triggered an 8.4%drop in the Sensex, making it the gauge’s worst August in at least a decade, according to Bloomberg data.

Foreign flows “will change if valuations come down or if you see earnings moving up, which I think will happen given the high-growth rate in the country,” said Mobius.

India’s $1.3 trillion stock market, Asia’s fourth-biggest, is influenced by foreign fund flows. Inflows from abroad surged to a record $29.4 billion in 2010, making the Sensex the best performer among the world’s top 10 markets. The largest-ever outflow in 2008 led the biggest annual slump of 52%.

“We are, of course, still continuing to buy in selective areas,” Mobius said.

Src: FE

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