![]() Where the penetration is high in any sector, earnings growth rates may be challenged as these companies are most exposed to global cyclical issues IT services being an example. Midcap IT companies could see improved prospects if they are more exposed to clients that are growing very fast, but smaller companies tend to come with a higher risk profile. In the IT sector, for example, we see reasonable upside potential for some, but not all, so we need to be selective as we invest. 3Īs investors, we discount cash flows based on an appropriate tapering growth rate to compute the intrinsic value of companies. Currently, the price-earnings ratio for Indian stocks (based on the MSCI India Index) stands at 24.13, higher than the MSCI Emerging Markets Index, at 12.41, or the MSCI All Country World Index, at 18.30. Some analysts surmised that the valuations for Indian stocks didn’t make sense in a lower-growth environment, and thus the market needed to correct. The risk profiles of companies differ depending on how diversified they are, the type of clientele they are exposed to, etc. ![]() That said, as investors, we have to be selective. As such, growth rates for many Indian companies may be lower than in the past, but I think the long-term prospects still look good. But as Indian companies in the space have grown in size and importance globally, they are now more exposed to global issues. It used to be a small sector, with a small share, and thus able to grow via gains in market share, even when the pie was shrinking. Indian companies have been able to capture a more substantial portion of the global IT spending pie. The Indian information technology (IT) sector represents a sizable part of India’s stock market and has been growing in recent years. 2 In March, investors pulled back from perceived “risk assets” in the wake of the banking turmoil in other parts of the world, but Indian companies - particularly technology companies - faced other challenges. Meanwhile, Indian stocks have recently underperformed - the MSCI India Index declined in the first quarter of 2023, while the MSCI All-Country World Index, a global stock market proxy, was up more than 7%. 1 Contrast that with negative numbers anticipated in parts of Europe this year and growth of only 1.1% seen in the United States - with many forecasters anticipating a recession there as well. India’s gross domestic product (GDP) is expected to grow 5.9% in 2023, on the back of 6.8% growth in 2022. India’s economy has been resilient in the face of recent challenges, including the banking turmoil impacting the United States and Europe. He shares his latest outlook in light of recent events. However, there are signs that perhaps the tide has turned, and investors may be taking another look, according to Franklin Templeton Emerging Markets Equity’s Sukumar Rajah. India’s stock market has underperformed global markets overall as well as some of its emerging market regional peers so far this year. By Sukumar Rajah's, Senior Managing Director, Director of Portfolio Management, Franklin Templeton Emerging Markets Equity
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