India Could Be Headed For Major Correction
India is emerging as one of the potential shining lights of growth in the years ahead.
The Indian economy is expected to expand by at least 7% this year.
And Indian stocks are showing their strength.
Perhaps too much strength though.
Even too much strength for us.
Shareholder Intel is most bullish on emerging markets because, as a group, they’re the cheapest, least risky, and have the most appreciation potential of any major asset class in the world.
As further proof of this position, Indian shares have been one of the few bright spots in a rough 2022.
They trounced the U.S. by about 22% (+2% vs -20%) and they handily beat other emerging markets too.
But here’s the issue.
India is no longer cheap.
The Wall Street Journal raised this valuation problem in Indian Shares Face Tough Year As China Steals The Limelight.
The paper brought up specifically how expensive Indian stocks had become.
It cited how the MSCI India index ended last year with a P/E 21.4.
That’s more than double the year-end China P/E of 10.4 and nearly double the 11.3 P/E for the broad MSCI emerging markets index.
Now, we don’t know if this is expensive or too expensive.
There’s a big difference.
But the expectations are higher with 7% GDP growth in India expected next year.
If it falters just a bit – even because of impact from external events like a recession in the U.S. and Europe – Indian stocks could pay a heavy price.
So even though emerging markets may be cheap as a whole, if you’re going to look individually, you’ve still got to buy cheap.
The current rally won’t last forever. And when it ends even “relatively cheap” stocks like those in India could still take a good tumble.
India may be “buy low” again soon. Odds are patience will go unrewarded on this one.
