Downgrades continue for Indian Market

The Indian stock market, which was not so long ago celebrated by investors as the best thing to have happened to the securities world, seems to have all of a sudden become anything but desirable. Contrary to the prevailing perception that economy remains fundamentally strong here and financial markets are more mature than those of other emerging nations, global financial giant Citigroup has ranked India as the second least attractive among all Asia-Pacific stock markets.

Joining the ranks with Citigroup, another leading global brokerage house Bear Stearns as well as a leading overseas fund house, Aberdeen Investment Trust, have labelled Indian stocks as "expensive." "After February's sharp fall (a 1,329-point plunge including three one-day falls of 300-500 points), market conditions in March remained choppy," Citigroup said in its latest Asia-Pacific radar screen report, which tracks market attractiveness across the region. While, Hong Kong, Singapore and Australia took the top three spots on the Asia-Pacific list, followed by Malaysia at the fourth position (down from second position), Citigroup said that India was among the bottom half of the ladder along with New Zealand, and Taiwan.

Even Thailand moved sharply up the ladder and secured a safe position ahead of India on the back of improved momentum and continuing low valuations. India was ranked ahead of New Zealand alone in the list. Investor interest helps drive the stock price and valuation higher, it continued to edge closer to unattractive quadrant, where investors start recognising that valuations are stretched and begin selling. Echoing the fears that foreign investors may not find Indian stocks a hot proposition any longer, a number of investment banking and brokerage firms like Bear Stearns have already begun cutting their outlook on India, due to "expensive" valuations as compared to the earnings prospects.

Analysts at Bear Stearns, which has just downgraded its rating on Indian market from "market weight" to "underweight", said in a research note, "diminished investor appetite and poor relative performance presumably reflects Indian stocks' over-owned status and high valuations." India's benchmark index, Sensex has fallen 3.2 per cent since the beginning of this fiscal, while Malaysia's Kuala Lumpur composite index has surged over 15 per cent and there has been over 5 per cent gain in the Morgan Stanley capital international Asia Pacific index, Bear Stearns' Michael Kurtz and Joey Lam Lam said.