Indian Valuations: Sky-High Or Solid Bet?


What about the Indian growth prospects? The RBI Governor, normally a very conservative organisation, came out this this week and said that they’re not reducing interest rates at the moment, which is fair enough, but partly because they don’t have to, and can see that India is moving to a growth path of 8% real in the coming years. To put that into context, that’s 8% real, add a bit of inflation, we’re talking about 12% nominal growth and that’s for many years to come. It’s a very positive environment for companies in India.

But remember, the companies that we look at, at Aubrey are slightly different. Firstly, they’re in areas that are growing faster than the broader economy, such as organised retail which is developing from a very low base; or property which is coming up through a very long downcycle and into a very powerful upcycle and we have many years of urbanisation ahead of us. So, that’s the first thing, the industries and sectors we’re looking at are growing faster than that. Secondly, the companies we look at are growing faster, within those sectors, as the larger leading companies consolidate market share and grow again at a faster pace.

What about valuations? We’ve consistently argued that if you look at the market, the Nifty is trading at about 20x PE, very much in the middle of its range for the last eight years and it’s clearly not overvalued. More importantly, given the growth environment I’ve described, there’s a high likelihood that expectations will be continuously exceeded. There has been one year this century where Indian earnings have come in ahead of what their expectations were at the start of the year. In other words, analysts are usually very optimistic and usually get it wrong as it comes down. The one year that has not happened is 2024 and we expect 2025 to be the second.



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