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India’s costly equities may still be good value

indian equitiesThe Indian equity market, which is at an all-time high in local currency terms, may yet offer good value if the country’s reform agenda is maintained. The view, from a fund manager at Heartwood Investment Management, assumes that India is undergoing an economic transformation thanks to initiatives such as a goods and services tax and the “demonetisation” scheme, which removed roughly 86% of Indian currency from circulation in a bid to tackle illicit funds. “The valuations of Indian equities appear expensive across a range of metrics,” says Jaisal Pastakia. But, he adds, “we have to acknowledge that historical valuation comparisons may be less relevant to an economy that is seeing meaningful structural change”. The MSCI India index is trading at about 25 times price to earnings, “with financials, consumer discretionary and consumer staples standing out as particularly expensive”, says Pastakia. However, changes to the tax regime are predicted to accelerate economic growth, while efforts to reduce the number of unbanked citizens ought to increase demand for financial services. These trends have already led to a significant rise in domestic demand for equity funds, said the fund manager. ©2018 funds global asia

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