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India's underperformance risk in a bear case scenario should be limited as MSCI India's
price to tangible book valuation downside to the 2008/2009 lows is similar to MSCI Asia exJapan, and the Indian rupee is closest to its 2008/2009 lows versus Asian peers.
Limited relative performance risk for Indian equities if 2008/2009 valuation lows hold
Investors tend to gravitate to price to book valuation from price to earnings valuations when
gauging downside risk in a bear market as earnings estimates can suffer significant
revisions. As chart 1 shows, the downside to the price to tangible book value multiples at
2008/2009 lows is similar for MSCI India and MSCI Asia ex-Japan.
And currency risk also seems muted
Admittedly simplistic (as it ignores underlying macro-economic fundamentals), the downside
risk to the Indian rupee also seems limited compared to Asian peers if we look at the
downside to 2008/2009 lows from current levels. Refer chart 2 on page 2.
Lower leverage should also help relative earnings resilience
The earnings impact of the 2008/2009 downturn was exacerbated by the high leverage a few
Indian companies in cyclical sectors (Tata Steel, Tata Motors, and Hindalco) took on to fund
international acquisitions. Although aggregate leverage levels for the RBS coverage universe
for FY11 are similar to FY08, the higher leverage is now in more defensive sectors like telcos
and utilities.
Stocks trading below 2008/2009 price to tangible book lows
We screened the BSE200 Index for 18 stocks with average daily traded volume of US$2.5mn or
higher, that are now trading below 2.5x price to trailing tangible book value per share (P/TB), and
whose current P/TB multiple is lower than the 2008/2009 lows. We highlight Indiabulls Real
Estate, HDIL, Sesa Goa, IVRCL, Power Finance, and Union Bank – stocks rated Buy by RBS
analysts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India's underperformance risk in a bear case scenario should be limited as MSCI India's
price to tangible book valuation downside to the 2008/2009 lows is similar to MSCI Asia exJapan, and the Indian rupee is closest to its 2008/2009 lows versus Asian peers.
Limited relative performance risk for Indian equities if 2008/2009 valuation lows hold
Investors tend to gravitate to price to book valuation from price to earnings valuations when
gauging downside risk in a bear market as earnings estimates can suffer significant
revisions. As chart 1 shows, the downside to the price to tangible book value multiples at
2008/2009 lows is similar for MSCI India and MSCI Asia ex-Japan.
And currency risk also seems muted
Admittedly simplistic (as it ignores underlying macro-economic fundamentals), the downside
risk to the Indian rupee also seems limited compared to Asian peers if we look at the
downside to 2008/2009 lows from current levels. Refer chart 2 on page 2.
Lower leverage should also help relative earnings resilience
The earnings impact of the 2008/2009 downturn was exacerbated by the high leverage a few
Indian companies in cyclical sectors (Tata Steel, Tata Motors, and Hindalco) took on to fund
international acquisitions. Although aggregate leverage levels for the RBS coverage universe
for FY11 are similar to FY08, the higher leverage is now in more defensive sectors like telcos
and utilities.
Stocks trading below 2008/2009 price to tangible book lows
We screened the BSE200 Index for 18 stocks with average daily traded volume of US$2.5mn or
higher, that are now trading below 2.5x price to trailing tangible book value per share (P/TB), and
whose current P/TB multiple is lower than the 2008/2009 lows. We highlight Indiabulls Real
Estate, HDIL, Sesa Goa, IVRCL, Power Finance, and Union Bank – stocks rated Buy by RBS
analysts.
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