Valuation premium over China narrows

Equity market trend attributed to faster growth in India Inc earnings

- KRISHNA KANT

The premium of India's equity-market valuation over its Chinese equivalent is now shrinking as stock prices correct on Dalal Street while they rally in Shanghai.

India's premium over China fell to 54.2 per cent from 82.3 per cent at the end of August and a record high of 124 per cent at the end of September 2021. For comparison, the Sensex valuation premium over China was, on average, 48 per cent in the past 15 years. The trailing price-earnings (PE) multiple of China's equity benchmark, Shanghai Composite Index, is up 17 per cent in September, while there has been a moderation in Sensex valuation in the last one month in line with a decline in stock prices at Dalal Street.

The Shanghai Composite Index closed at a trailing P/E of 16.1 times at the end of September, up from 13.7 times at the end of August. It is up 17.4 per cent during September and closed at 3,336.5 at the end of the month compared to 2,842.1 at the end of August. The Chinese equity market is closed for annual holidays during the first week of October.

In comparison, the Sensex-trailing P/E multiple declined to 24.8 times on Friday from a high of 25.6 times at the end of September and 25 times at the end of August. The Sensex is down 3 per cent in October so far, closing at 81,688.5 on Friday, compared to an all-time high monthly close of 84,299.8 at the end of September. Analysts attribute the "contra" rally in China to its highly discounted valuation.