Prophets of boom presage a re-rating

If those who track the markets are to be believed, an upward re-rating of the Indian stock market is not far away.

The prediction is rooted in the fundamentals: the business process outsourcing -- or BPO -- boom, the government's increased focus on infrastructure, accelerating auto sales, rising housing demand, the pick up in export growth and an average price-earnings ratio of 12-13.

Such fundamentals, the seers believe, will help India buck the global trend in 2003 by posting a GDP growth of 5.7 per cent as against the 3.7 per cent world economic growth forecast.

The refrain on Analysts Street is that this would translate into a re-rating of the Indian stock market 'which is undervalued at present.'

Says Sumeet Mehta, analyst with KRC Research, "While Indian companies have become cost-competitive and quality-conscious, and have thus improved their performance, they are not getting the desired valuations on the bourses. The Indian market is therefore much undervalued compared with its overseas peers."

According to S Nagnath, joint president and chief investment officer at DSP Merrill Lynch Mutual Fund, the market is witnessing a correction and while it could go to a low towards the end of the current month, it will again become buoyant after that.

India is expected to be among the few economies growing at over 5 per cent in the current fiscal even as the US, Europe and Japan faces recessionary conditions and poor growth.

Analysts said that the recoveries in the western markets would take a longer time to happen and during the second half of the year allocations from foreign funds into Indian equities is expected to become pronounced.

Deven Choksey, managing director at K R Choksey, said, "The outlook for the Indian markets in 2003 is very positive so long as there are no war tensions."

He added that the local market is undervalued and trading at a PE ratio of 12-13, which offers tremendous opportunities for investors.

Those tracking the economy and the markets said that the legislative reforms, which took place last year, would now start impacting the economy.

The only fears would be in the event on actual outbreak hostilities between the US and Iraq and the general feeling is that it would be a limited war and might be over in a short time.

While oil prices may jump when the war starts, they are likely to see a gradual fall once the spat is over.

Unlike China, where infrastructure development has plateaued, in India the opportunities are still there, said an analyst.

"In fact, Indian companies in general have become more conscious of quality, are more competitive in terms of prices (probably due to the China effect), but somehow all this is not been translating into right valuations in the market-place," he added.