Why Asian Shares Can Double in the Next Two Years

Barron’s published an interview with Ajay Kapur, Asia-pacific and emerging market strategist of Bank of America Merrill Lynch. Here’s what Ajay had to say about India’s equity market -

Question: India has underperformed in the past year or two. What has gone wrong?

Clearly, India is a great long-term story and has shown improvements in the macro fundamentals. International reserves are pretty good; we have seen structural reforms like the sales tax, which broadens the tax net, as well as bankruptcy law and inflation being under control.

One reason we don’t like India right now is that we don’t see earnings growth. Earnings are constantly being revised downward. At the start of the year, analysts are very bullish, and they spend much of the year taking those numbers down. At the start of this year, analysts were expecting 19% growth. That was almost halved to 10% currently.

We think the market is expensive compared with its peers. The market trades at 19 times this year’s earnings, while the region is around 13 times. It is also one of the few countries where the current account is deteriorating.

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