Tight valuation has pushed global asset managers to reduce their allocations to Indian stocks, gaining $1.1 billion so far in April.
Bloomberg
By Catherine Bosley
Indian stocks have soared to become among the world’s most expensive, but its bonds look relatively cheap despite being Asia’s best performers this year.
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The benchmark 10-year bond offers a premium of almost 270 basis points over the earnings yield of the MSCI India stock index, making the country’s debt more attractive to investors just months before its inclusion in the indices of JPMorgan Chase & Co from June.
India, like Japan, has become a preferred choice among investors turning away from China. That leaves Indian stocks trading at around 22 times expected earnings over the next 12 months, compared with 16 for Japan and nine for China, according to data compiled by Bloomberg based on MSCI Inc indexes.
The strained valuation has led global asset managers to reduce their allocations to Indian stocks, gaining $1.1 billion so far in April. Expectations of some Fed rate cuts this year affecting risky assets led the Fed to also sell $1.3 billion in bonds this month, according to data compiled by Bloomberg.
Nonetheless, attractive yields and one of the least volatile developing market currencies have increased the appeal of Indian sovereign debt to investors such as abrdn.
“Both on the domestic and international investor side, there is a lot more capital that can be committed to this market,” said Jitania Kandhari, deputy chief investment officer for the solutions and multi-asset group at Morgan Stanley Investment Management. . India “has the conditions for growth, namely demographics, and is in an ideal geopolitical situation,” she said.
