“Have a Eye on the Speed o Meter ...., ” ...10th November ,2007

“Have a Eye on the Speed o Meter ...., ” ...10th November ,2007
We are witnessing fabulous run up in the equity market in last few days. All of a sudden every body started discussing about Chinese markets and its valuations , I just want to share few insights of Chinese valuation vs India. China an economy known for its manufacturing capabilities , a country aspiring to dominate the G7 countries and very important fact an economy recording a double digit growth consistently from last few years. Through my eyes of stock market , a market always enjoys the premium valuation , not because of tasty Chinese grilled chicken but for its strong manufacturing capabilities. China's economy maintains sustained and rapid development in the past 20 years . It has actually achieved a new stage which use meet the needs of the people as main content big industry as means and large scale change of production mode as life stage .
China which opened its doors to the foreign direct investments in the year 1980. and is a country where the foreign insurance companies can increase their share holdings up to 51 % in insurance and banking industry . If we compare the size of the economy , the GDP size of china is 13 trillion , where as India 1 trillion economy .
The main reason why iam taking through all these facts because when ever there is a bullish trend in the Indian stock market the so called analysts in India looks at china`s premium valuation, which always trades in the range of 35 to 40 times to price earning multiples and the give comments " This is the time for India to enjoy such type of multiple valuation and try to lure and keep in the trance of Gung-ho..", I questioned my self it is necessarily very important to Indian equities to have such high valuation. In 1980 a year before I was born Japanese market was trading in the 100 times range . In 1992 Indian markets were trading in above 50 PE multiples, It was the time there was no significant growth in GDP and industrial production. Every economy has to go through the different economic business cycles , but in rapid growing phase also these kind of extreme valuation won't sustain for long-term , These kind of moves are short lived in nature. In the current contest when comparing the valuations of various equity markets like India and China , the demography s are different, geo , political situations ,economic systems and practices are quite contrary. finally the size and pace of GDP is different. Compare Indian equities with India`s corporate earnings and growth story but not with other equity markets which questions the health of the equity universe and creates the bubbles in the market. I want see the higher levels in the market and reaching new highs , but always valuations should justify the levels to enhance the margin of safety .
Don't concern for the sensex but give importance to the earnings growth. In a fast pace economy business dynamics could change any time, fifteen years ago the main problem of the economy was inadequate foreign exchange reserves but today the concern is excess liquidity , to days bullish sectors might turnout to be unflavored sectors tomorrow , which fund house dares to start a technology fund today ?.Themes will change . No doubt India is in prospective trajectory but over exuberance and discounting future growth immediately in the market might disturbs the ongoing party any time, every body want to see the growing and emerging markets but the quality of growth is vital , Always maintain ratio of price to earnings growth .For smooth and safe Investment journey Speed o meter should be under control.