Sebi chairperson defends Indian markets’ premium valuation

The Indian stock market has historically commanded a premium valuation over other markets on account of the strong growth potential and the overall economic growth rate of the country that dwarfs most other major economies. But it is also justified based on factors like optimism and trust, said Securities and Exchange Board of India chairperson Madhabi Puri Buch.

According to the first female head of the capital markets watchdog, while many feel that Indian markets are expensive, that is just a reflection of the trust and faith that India commands globally.

“Why is it that our markets are commanding… this price to earnings multiple which is higher than not only the averages of the world indices but also when compared with various nations,” said Buch while speaking at the CII Corporate Governance Summit.

“At 22.2x, some people say that we are (an) expensive market but still why is the investment coming? Because this is a reflection of the optimism and the trust and faith that the world has in India today that we are commanding this kind of multiples in our markets,” she added.

While the 30-share benchmark Sensex of BSE has gained a little over 25% in the last one year, the Nasdaq is up around 14% even as the S&P500 moved up a little over 27%.

The Indian benchmark has performed significantly better than most of the European and Asian benchmarks as the last one year saw Hang Seng shedding 17% while Kospi and FTSE have gained only 11% and 4%, respectively.

Meanwhile, the Sebi honcho also highlighted the fact that the resilience of the Indian market can also be attributed to the strong domestic flows especially by retail investors who have been investing directly and indirectly (through mutual funds) in the stock market.

On a different note, Buch said that going ahead investment products like Real Estate Investment Trusts (REITs) and Infrastructure Investment Trust (InvITs) will gain significantly in terms of value and could even be equal to the country’s gross domestic product (GDP).

“We think that going forward, possibly REITs and InvITs together can be in value equal to our entire market the way it is valued today. In other words, one time GDP,” said Buch