The premium valuations commanded by the domestic equity markets to their global peers is a sign of trust and faith that the world has on India, said Madhabi Puri Buch, chairperson, Securities and Exchange Board of India (Sebi). The comment comes within weeks of Buch raising concerns on ‘pockets of froth’ in the domestic markets, specifically in smallcaps, prompting some mutual funds to restrict flows into such schemes. Speaking at the CII National Corporate Governance Summit on Tuesday, Buch said, “Our markets are commanding this price-to-earnings (P/E) multiple, which is higher than the averages of world indices. Some say that we are an expensive market but still why is the investment coming? (It is) because of the trust and faith that the world has in India that we are commanding these kinds of multiples.” The benchmark Sensex currently trades at a trailing 12-month P/E multiple of 23.5x, higher than most global peers and below only to major markets such as the US and Japan. The Sensex has rallied 25 per cent in the past one year while the BSE Smallcap and Midcap have surged 65 per cent and 77 per cent, respectively.
The Sebi chief also said that the rising tax collection numbers and profit growth expectations show the ‘momentum and velocity’ of India. “We are witnessing the hockey-stick phenomenon at the economy, market-wide and ecosystem levels. The market cap has risen from Rs 74 trillion to Rs 378 trillion — we are at one-time the GDP now — the growth has been phenomenal in just 10 years. India’s weight in the emerging market index has surged from 6.6 per cent to 17.6 per cent. This is the velocity we speak about; this is the momentum of new India,” she added. Hockey stick growth is a pattern that shows sudden growth after a long period of linear growth. Focussing on debt investments, Buch said that Rs 10.5 trillion has been raised by the industry from the capital market in the past 12 months. Calling for higher trust and transparency between the regulator and industry, Buch said the regulator is a representative of the public shareholders. “When a company goes public, the regulator acts as a proxy for the larger investor base. Overall, 44 per cent shareholding is with the promoter; so the regulator is the proxy for the other 56 per cent. When the industry seeks to build trust with the regulator, it’s trying to build trust with the market. When the regulator seeks to build trust with the industry, it is doing as a representative of that 56 per cent,” she said.
Praising the technological and regulatory implementations over the years, including the transition to T+1 (trade plus one day) and now the optional T+0 (same day) settlement cycle, Buch said that from the last seat of global fora, India has moved to the centre stage where people turn to it for guidance and advice. India’s equity transitioned to the T+1 cycle in January 2023 while the optional T+0 was launched in a beta form last week. The Sebi chairperson also said that the regulator has brought down the time taken for processing applications and the ease of doing business. As of February 29, the number of mutual fund schemes pending approval longer than one month was only one while 11 were processed within a month.
-Business Standard 3rd Apr, 2024.
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