Nifty trades higher than expected; India's valuation gets 'less attractive'

After a 70 per cent rebound from March lows, India’s valuation is now above the long-term average. Foreign brokerage UBS has ranked Asian markets based on how their 12-month forward price-to-earnings (P/E) ratio compared to the 10-year average. The study showed Malaysia, Hong Kong, and Indonesia currently trade much below their long-term averages, making them attractive bets for Asia-focused investors. On the other hand, China, India, and Thailand are the most expensive if one looks at the P/E ratio relative to history. The Nifty currently trades at 21.4x its estimated 12-month forward earnings. The index’s 10-year average is about 17x. “Although growth and earnings should rebound in 2021, the recent performance has pushed valuations into a less attractive territory, unlike Asean,” says UBS in a note. The brokerage has a ‘neutral’ rating for India. The brokerage says the rising oil prices, mutual fund outflows, and fiscal policy can be key risks next year. Also, the reform progress and the fiscal deficit number announced in the Budget will impact the markets. UBS is overweight on South Korea, Japan, and Singapore, and underweight on China and Taiwan.