One of the more reliable sell signals for any asset over the past few years has been sizeable buying by Japanese investors. They tend to miss the boat: not only were they among the last investors into the US property market just before it started sliding in the 1980s, but they also came late to the dotcom party. Now, ominously, they’ve discovered India.
A year ago, Singapore had more money in India than Japan, but today Japanese funds have some $4bn in the subcontinent – that’s about half the international interest in India.
It’s easy to see why they’re keen. The economy is rocketing, with GDP growth edging up to an annual pace of 8.1% in the latest quarter, powered by low interest rates, mounting consumption, and buoyant exports. Long term, the outlook remains excellent: 60% of the population is under 25 and the workforce is carving out a strong presence in global service industries such as IT.
But while a bet on India makes sense to us long term, now may not be the time to jump in. After a 33% jump to a record high of almost 8,800 last week, the market looks overdue for a breather.
Ratnesh Kumar of Citigroup reckons that investors have yet to factor in the effect of high oil prices and higher wage costs on earnings. He sees earnings growth slowing to 16% in the year to next March from an annual 25% over the past five years.
The Sensex index is on 16 times this year’s earnings, above the four-year average of 13. Given this, Sakthi Siva of UBS reckons that we’re in for a correction of 6%-10%