Equity valuations in India have increased to among the highest in emerging markets of Asia, with domestic equities bouncing back during the quarter ended September.India has been the top gainer among the 10 emerging markets of Asia and sixth among 27 global emerging markets for the quarter, according to Morgan Stanley Capital International’s country-specific equity indices.At 16.7, the price-to-earning (PE) ratio of BSE Sensex is lower only to Taiwan’s widely tracked TWSE Index PE of 17.8 as on September 30. The ratios for benchmark indices of other emerging markets of Asia like China, Indonesia, Malaysia, Phillippines and South Korea were at 15.1, 13.8, 14.6, 15.6 and 15.9, respectively.While PE ratios in India have surged, all other major Asian indices, except for Indonesia’s Jakarta Composite, have declined during the quarter ended September.Indian equity markets have been able to recover from the lows of May 2004. This is due to healthy inflows from FIIs. Since equity valuation is a critical factor in determining allocation among various emerging markets by FIIs, comparatively higher valuation may turn out to be a spoilsport in the near future.
