India is one of the most expensive major markets on a price-to-earnings (P/E) basis. It trades at 16.4 times its estimated 2017 earnings. In comparison, Asia (excluding Japan) is valued at 12.7 times, China 11.8 times, Europe 13.8 times and the US at 16.6 times.
India, however, offers one of the highest earnings per share (EPS) growth among global markets. India's EPS is expected to grow 18.4 per cent in 2017, against China's 14.4 per cent, Europe's 13.2 per cent and the US' 13.4 per cent. On P/E to EPS growth ratio, India is the second-most undervalued market after China. As the ratio factors in growth potential, many experts say that is better valuation metric than P/E.
According to the brokerage, India's EPS has been revised downwards by an average of 10 percentage points (pp) in the past four years. "Again, if we apply the last four-year average EPS revision for India of 10 pp to 2017, EPS growth is likely to be 8.4 per cent. Again, the PEG ratio doubles from 0.89 times to 1.94 times," the note says. Samie Modak takes a look at what the brokerages' say:
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