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This article is more than 1 year old.

India's P/E premium at an attractive level despite FPI selling spree, says Emkay

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During December-March 2020, the FPI (foreign portfolio investors) ownership has slipped 150 bps while in 2008 (during the same quarter), it had fallen 100 bps, said Emkay Research. However, India has outperformed its EM peers. It's PE premium has eroded and currently provides an attractive opportunity for the investors.

India's P/E premium at an attractive level despite FPI selling spree, says Emkay
The 2008 global financial crisis and the current coronavirus-led market crash are similar on some levels. However, foreign investments have become a big concern this time around.
From December 2019 to March 2020, the ownership of foreign portfolio investors (FPIs) has slipped 150 bps while in the December 2008 quarter, it had fallen by 100 bps, Emkay Research pointed out in a report.
The brokerage analysed 160 of the top 200 stocks and found an interesting angle about promoters buying significant offsetting factors in FPI selling, as it is seen that promoter stake has increased during the same quarter (December-March 2020) from 47.8 percent to 49.4 percent.
Seeing the rise in promoters stake, Securities and Exchange Board of India banned promoter buying of shares until June 30, 2020. However, one important point that arrives here is -- will FPIs continue their selling spree?
According to the brokerage, the 2008 market crash saw foreign investors selling even after the market stabilised. Despite 100 bps drop in FPI ownership in 2008, there was another 60 bps slip in the subsequent quarter.
Therefore, it can be said that the current FPI selloff (150 bps) is of the same magnitude as that of 2008, and a majority of the selling done by foreign investors came prior to the initial lockdown that was implemented in the last week of March.
However, analysts at Emkay Global are not jumping the gun. “It is difficult to conclude if FPI selling is done – it depends on global risk sentiment, of course,” the report said.
On the other hand, India has outperformed its EM peers slightly over the last one month.
The brokerage said that India's PE premium has eroded and currently provides an attractive opportunity for investors.
The report added, "The PE premium to EMs has actually come down further over the last one month inspite of the outperformance. Clearly, this is due to sharper earnings cuts in other EMs vs. India. During this period, India’s FY22 EPS estimates have come down 5 percent."
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