Is everyone investing in India?

Maybe not everyone is investing in India, but enough foreign capital is coming in to push the Sensex equity index to a new high (beating yesterday’s record high). You may recall the confusion in May, but we have seen a 38% climb since then.

So is it too late ot get in? It doesn’t seem too late:

The improvement in foreign perception has been backed by a record net $7bn in foreign inflows this year – still low by south-east and east Asian standards but ahead of the $6.5bn invested in Indian equities last year. It is almost nine times the total inflows of 2002.

While the foreign investment has been increasing quickly it still hasn’t reached levels seen in other Asian economies. And the PE ratios are not as high as in many other emerging markets:

India’s price/earnings ratio, a conventional measure of equity valuations, is still below 16, relatively cheap compared to many emerging markets. Corporate earnings growth is above 20 per cent in many sectors.

Prudential likes the Indian markets due to strong earnings. Corporate earnings are expected to grow at 13.4% in 2005 for a forward PE of 11.3 Corporate earnings should not be confused with economic growth; India’s economy is expected to grow around 6% this year, and between 7%-8% in 2005.

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