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By Rohit Bajoria

WHERE TO GROW YOUR WEALTH

From Wall Street to Dalal Street?

John Templeton once said, “When all are selling, you should help them by buying and when all are buying, you should help them by selling your stocks.”

The year 2008 will remain as the one of the worst years for Indian stock markets. Stock markets steeply corrected to below 13,000 levels from above 21,000 levels after four continuous bull years in share markets.

The PE multiple of the Sensex, which was at a rich 28 times (based on historic 12-month earnings) at 21,000 levels, has plunged to a less than 14 times now, according to Bloomberg data. The erosion in Sensex PE multiple in this meltdown may be the worst in a decade, even including the ‘dotcom crash’ of 2001.

Banking and realty companies have been worst hit, with SBI (State Bank of India) seeing its PE multiple fall from 20 times to just six, while DLF has seen its PE plunge from 90 times to 8 times.

Reliance Industries, Jaiprakash Associates, SBI, Tata Steel, Reliance Infrastructure (formerly Reliance Energy) and DLF, are among companies that have seen their PE multiples trimmed to half their January level.

Many of these companies have seen their valuation fall even as they managed a sharp ramp-up in their earnings for 2007-08.

DLF (earnings per share grew from Rs 13 to Rs 47 between FY07 and FY08), Bharti Airtel (Rs. 21 to Rs. 34), HDFC (Rs. 69 to Rs. 100) are key instances.

Beaten down!
Company
P/E-times

January
July
DLF 90.6
7.9
Reliance Infrastructure
65.6 13.8
Jaiprakash Associates 90.6 22.4
Tata Steel
13.8
3.9
State Bank of India
20.4
6.1
Grasim Industries

15.9

6.1
Reliance Industries
36.8
15.2
HDFC
44.2
18.4
ICICI Bank

43.4

18.3
HDFC  Bank
46.9
20.8
Source:Bloomberg
Based on historical earnings for the previous financial year

The main reasons for the slowdown in the Indian markets are inflation, monetary tightening, control on commodity prices and the net outflow of Rs 73,242 crore ($16.6 B) by foreign investors so far this calendar year.

The Chairman of the Economic Advisory Council to PM, Shri Suresh Tendulkar released the ‘Economic Outlook for 2008-09’ which projected that the Indian Economy would grow at 7.7 per cent during 2008/09 (Apr’08 to Mar’09) as against 9% in 2007-08 (Apr’07-Mar’08)

Agriculture 2.0 per cent       (4.5% in 2007-08)
Industry 7.5 per   cent        (8.5% in 2007-08)
Services 9.6 per cent           (10.8% in 2007-08)

In order for India to become the third largest economy by 2050 as predicted by Goldman Sachs, “it must maintain a five percent growth rate per annum”.

India is the only country among the major countries expected to
do this,” said Radhika Rajan, a principal with The Chatterjee Group in New York.

Rakesh Jhunjhunwala, India’s most successful investor, says, “numerically - surely, since we have broken the last lows that we had in August 2007, we'll have to term it as a bear
market. But I don't think the long-term Indian stock bull market has ended. I think it’s in interruption mode.”

 

 

 

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