Sensex still expensive among Asian mkts

There may be some time before the bulls can assert themselves in the Indian markets, rocked by the collapse of Lehman Brothers Holdings and the sellout of Merrill Lynch to Bank of America.

The events of the last two days have been enough to give jitters to even the seasoned marketmen.

At a meeting of fund managers in India last week, an HSBC team found that two-thirds of them were outright bullish, some extremely so, and many were even puzzled as to why the Indian market fell at all this year and why foreigners were net sellers.

“When you continue to receive cash to invest, it is hard to feel too bearish. That is doubly true when you live in a country about whose long-term future you feel tremendously optimistic,” says Garry Evans, strategist at HSBC, in a September 12 note to clients.

However, the sentiment has turned extremely negative as it sinks in that the financial crisis may be far from over and it will not leave India unscathed. Reports in the media of Lehman employees losing jobs and Merrill Lynch staff quitting have added to the fear that the financial services industry may be in for some more pain.

“Investors must be aware of the fact that there is a slowdown. There will be temporary trading opportunities in this kind of market because of high volatility, but it will take time for this sentiment to wear out. India is linked to the global markets and cannot emerge unscathed from this,” said Satish Ramanathan, head of equities at Sundaram BNP Paribas AMC.

Despite being beaten down, Indian stocks do not come cheap. The benchmark index, Sensex, is currently trading at an expensive 13.46 times of current price to earnings (P/E), making it the third most expensive market in Asia.

China’s Shanghai composite index is trading at a P/E of 15.42 times, while Japan’s Nikkei 225 is trading at a P/E of 14.15 times, according to Bloomberg data. Obviously, there are exceptions, but the sentiment has taken a hit.

Foreign investors, too, remain unimpressed as they maintain underweight on Indian markets.