HDFC Asset's Jain Says Indian Stock Markets Close to `Being Fairly Valued'

India’s stock markets, trading at their highest in more than 2 1/2 years, are approaching fair value, Prashant Jain, chief investment officer at HDFC Asset Management Co., said at an event in Mumbai today.

“The markets are close to being fairly valued,” said Jain, who oversees six of the 15 best-performing Indian funds during the past decade. “It is almost after three years that markets have crossed 20,000. In three years, the economy has grown and many companies have grown meaningfully.”

The Bombay Stock Exchange’s benchmark Sensitive Index rose 135.37, or 0.7 percent, to 20,543.08 today, approaching a record high as foreign investors bought more shares than they sold for a 25th straight day amid optimism the nation’s growth will boost corporate earnings.

Overseas funds bought a net 9.7 billion rupees ($217 million) of Indian equities yesterday, extending this year’s record inflows to 939.7 billion rupees, according to the nation’s market regulator.

“If you take a three- to five-year view, then returns should be in line with earnings growth rate,” Jain said. Returns of as much as 20 percent from a diversified portfolio of equities are not very difficult to achieve and the markets are not overvalued, he said.

Best Performer

This year’s 18 percent rally makes the Sensex the best performer among the world’s 10 biggest stock markets. Foreign fund inflows have surged 59 percent this year, making the gauge the most expensive in Asia and among the BRIC markets that also include Brazil, Russia and China. Gross domestic product expanded 8.8 percent last quarter from a year earlier, the most among major economies in Asia after China.

“The Indian economy is going to quadruple in the next 10 to 12 years,” Sunil Singhania, head of equities at Reliance Capital Asset Management Ltd., India’s biggest money manager, with $23 billion in assets, said on Sept. 29. “Foreign inflows will continue over the next five to six years.”

The gains have made India the most expensive among the world’s 20 largest stock markets, according to data compiled by Bloomberg. Stocks on the Sensex are valued at 19.5 times earnings, compared with 13.7 times for Brazil’s Bovespa Index, 7.8 times for Russia’s Micex Index and 15.1 times for China’s Shanghai Composite Index, among the so-called BRIC markets.

HDFC, with $21 billion in assets, is India’s second-largest money manager.