Home Education Despite higher valuation, optimism and faith leading to investments in India: SEBI Chief | Business News

Despite higher valuation, optimism and faith leading to investments in India: SEBI Chief | Business News

Despite higher valuation, optimism and faith leading to investments in India: SEBI Chief | Business News


Securities and Exchange Board of India (SEBI) Chairperson Madhabi Puri Buch on Tuesday said that despite a higher price to earnings (PE) ratio compared to other countries, India is attracting investments because of the faith and trust of global investors into the country.

“Yes, at 22.2 (PE multiple), some people say we have an expensive market, but still why is the investment coming (in)? This is a reflection of the optimism and the trust and faith that the world has in India today that we are demanding these kinds of multiples in our markets,” Buch said at the Corporate Governance Summit organized by CII.

PE ratio is the ratio of the share price of a stock to its earnings per share (EPS). It is a valuation metric which indicates whether a stock or an index is expensive or cheap.

Buch said the Indian stock market’s PE multiple is even higher than the averages of world indices. The Indian market’s PE ratio is higher than most of the major economies, except for Japan. As of April 2, the one-year forward PE ratio of Japan stood at 23.2, while that of China was at 10.86, Taiwan at 18.4, France at 14.28, Germany at 13.6, South Korea at 11.36 and Singapore at 10.64, a stock market analyst said.

There have been some concerns over the valuations of Indian stocks, particularly in medium and small-cap companies. In a recent interview with The Indian Express, Kotak Mahindra Asset Management Company’s Managing Director Nilesh Shah said that at present the market is not cheap like it was during the subprime crisis in 2008, or even in mid-2022. It is a fairly valued market and the large-cap, mid-cap and small-cap are trading slightly above their long-term historical averages, which is also justified as profits are also above average.

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“Our fundamental growth story is looking very good. Now, are there excesses in the market? Undoubtedly, yes. Normally, the valuation of large-cap is the highest, mid-cap little lower, small-cap lowest and micro-cap even lowest. Currently, we are seeing a reverse trend in terms of valuations,” Shah had said.

In the previous financial year, while the Sensex gained 25 per cent, the Nifty jumped 29 per cent. Foreign Portfolio Investors (FPIs) purchased Rs 2.08 lakh crore of domestic shares on a net basis in FY24.

The SEBI Chairperson further said one of the important factors which was driving the resilience of the domestic market was the participation of retail investors, directly or indirectly through the mutual funds. She said in the last 10 years, the unique investors have risen from 1 crore to 4.4 crore. Even the assets under management have grown from Rs 8 lakh crore to Rs 55 lakh crore.

The latest data from the Association of Mutual Funds in India showed that the amount collected through Systematic Investment Plan (SIP) stood at an all-time high of Rs 19,186.58 crore in February 2024 as against Rs 18,838.33 crore in the previous month.

In the last 12 months, Rs 10.5 lakh crore has been raised by the industry from the capital markets.

On the Trading plus one (T+1) trade settlement cycle, Buch after the implementation of this cycle there has been improvement in the defect rate of settlement as measured by the delivery versus payment (DVP) ratio. DVP is a method of settlement for the securities market.

“Prior to moving to T+1 (trade settlement cycle), the defect rate was 0.7-0-8 per cent. After the implementation of T+1, it halved to 0.3-0.4 per cent. So, the entire process is far more optimal and efficient after moving to T+1,” she said.

The T+1 cycle for the settlement of funds and securities was fully implemented in January 2023. Under the T+1 cycle, securities and funds are settled by the next day of the trade. Last month, SEBI introduced the Beta version of the optional T+0 settlement cycle, or same-day settlement.


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