India valuations merely trimmed a bit after fall
Following the fall in the markets last week, some of the froth in the valuations of Indian equities has come off. Domestic brokerage house Kotak Institutional Equities feels valuations are still not quite in the “buy” territory and going ahead, the quality of corporate earnings growth will be key. Even assuming no risks to the quantum of earnings growth over FY2019-20E, the quality of earnings growth is quite poor, with a large portion of incremental profits of the Nifty-50 Index and KIE Universe Coverage coming from sectors such as PSU banks, metals & mining, oil & gas and utilities, which should logically trade at lower multiples,” Kotak said in a note dated 6 February. Sharing a similar view, another broking house Motilal Oswal Securities Ltd said the story is shifting from P-E expansion led by low cost of capital to earnings recovery now, unlike in the past three years, when low cost of capital aided multiple expansion. The recent correction has moderated this premium—albeit still remains high—and offers a little more breathing space,” added the Motilal Oswal report.
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