Time to book Profit - Say Experts

Close on the heels of HSBC’s Sanjiv Duggal giving a thumbs down to Indian equities, Deutsche Asset Management’s investment specialist Bill Barbour has also blown the warning bugle cautioning investors to be prudent while investing in the home market.

“Your market has gone up a long way. It’s time to book profits,” Mr Barbour warns Indian investors. According to Mr Barbour, Indian shares, priced at an average of 23 times estimated earnings, is a bit over-valued. Though foreign investors are still “big fans” of India, there are cheaper investment opportunities (with more upside to appreciate further) in other markets like Brazil, South Korea, and Taiwan, he opined. “Investors have received fantastic returns — at times as high as 40 to 60% — over the past 5 years from the Indian market. People should understand that no tree grows to the sky.
I am not saying Indian shares will not do well in the long term; but as of now, Indian valuations are a bit too over-stretched,” Mr Barbour told ET. A recent study to see how well-priced Indian bluechips are vis-a-vis their peers in developed and emerging markets, reveal that Indian shares are far more expensive (in terms of PE multiples) than world leaders with better revenues and adjusted profits. To highlight the disparities in PE (price to earnings) of Indian companies and world leaders, L&T with a trailing PE of around 56 times is far more “pricier” than engineering behemoth GE (17) or Mitsubishi (13). Likewise, ICICI commanding a PE of 43 times is far more expensive than Citigroup (9) and BNP Paribas (8). IT major Infosys with a trailing PE of 26 is undoubtedly valued higher than EDS (13) and Oracle (20). “People might say India is cheaper when compared to China. But to put things in the right perspective, we can buy a bank in the US at 1 time price to book value (PBV). Indian banks command 4.5-6 times PBV and Chinese institutions around 8 times PBV. This is highly illogical. Yes, HDFC and ICICI are great companies and they’ll do well in the long term. But compared to the Merrill Lynches of the world, Indian banks are very expensive. However, all said and done we are big fans of India,” said Mr Barbour. If fund managers decide to exit investments in India, they have cheaper investment opportunities in Brazil, South Korea, Taiwan and Russia.
Another lure is that post the financial crisis hitting US markets, American shares have become much cheaper for them to invest in. On the Chinese market, Mr Barbour said China is in a bubble. “Everybody is buying shares in China because it is going up; but shares that go up, also undergoes a corrective phase,” he added. On the US slowdown, Mr Barbour opines, “We are looking at a slowdown in the US. But hopefully, we have averted the worse case scenario. Everyone talks about decoupling of the US economy with Asian economies; but even with that US still accounts for a huge amount of growth. If US slows down, it will impact all other economies”.

Courtesy to Economic Times