Aubrey 60 Second Insights – Emerging Markets in September

Is India expensive? We don’t think so.

We should like to address the regular refrain that Indian equities look expensive.

In 2020 and 2021 covid lockdowns and subsequent re-openings distorted the historical trend, but India literally roared back to life after covid and by the end of 2021, the market had perhaps run ahead of itself. The Nifty 50 Index reached a PE of 25x, well above the decade long range of 18-22x and then it could be argued that it was expensive.

But let’s dwell on that decade-long range for a second. In fact, this was a period of relatively modest earnings growth for the Nifty, as India was still digesting the previous investment boom and bust. Despite this, and despite trading at a distinct PE premium to nearly all other markets, India was among, if not the, best performing emerging market over the period.

Recently, the Nifty has broken out to a new high, but it is still only a little above where it was in late 2021, and earnings have grown strongly since then. As a result, it is currently sitting just below 20x, so marginally below the 10-year average, despite being on the cusp of another investment upcycle, and most likely the fastest growing major economy in the world for the foreseeable future. Not to mention the fact that most Indian companies are starting this cycle with little debt and enviably strong cashflows. It might be worth noting that during the last upcycle, Nifty earnings per share compounded at 31% (2003-2009), and while we can’t promise the same again, it helps to highlight the potential.

We focus on the consumer, which we believe will continue to be the best way to invest in the Indian story, and partly as a result, our portfolio is at a premium valuation to the broader market, as it has always been. But this has not prevented the Indian portion of our GEM portfolio returning well over 2x the MSCI India return since inception in 2012 until today.

Is India expensive? We don’t think so. Certainly not relative to history, and not relative to its potential.

A pdf of this article can be accessed here.


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