India most expensive market, but a good structural investment opportunity, says Benjamin Cavalli of Credit Suisse

Foreign portfolio investors are selling off Indian equities because the Indian market is most expensive in comparison to other markets, said Benjamin Cavalli, CEO, Hong Kong Branch and Head of Wealth Management, Asia Pacific, Credit Suisse, in an interview with the Economic Times.

"India is the most expensive market relative to other economies and hence FPIs are reallocating capital elsewhere. The MSCI India Index is trading at a P/E premium of nearly 70 percent versus the 10-year average of about 45 percent. Although the valuation premium has fallen from an all-time high of about 90 percent, still the historic high premium is making FPI nervous," said Cavalli.

However, he added that the "valuation froth in Indian equities has settled and the absolute valuation is more or less in line with the long-term average."

"In the medium to long term perspective, the Indian economy could do well and hence in our view the outflows should abate once the oil prices start to stabilize," said Cavalli.

In his view, India is a good structural investment opportunity and over the past few years, the confidence in India has even grown due to the reforms and structural changes.

"Some aspects India needs to focus on to help catch up would be 1) infrastructure: India is ranked significantly lower than China, and 2) regulatory red tape," he said.

"There could be more pain in the near term if global growth plummets, however, our team believes the economic pain for India will be limited given strength in India’s banking system after the clean-up and improved government finances," he told Economic Times.

"India has the potential to gain more “market share” in terms of FDI into Asia because of favourable demographics, faster-growing middle class, and a stable government," Cavalli said.

Disclaimer: This article is based on an Economic Times interview. The views and recommendations made above are those of the analyst and not of MintGenie.