Indian Stock Market Is Expensive Based On Valuation

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The Indian equity market is one of the top performing emerging markets so far this year. The benchmark S&P BSE Sensex crossed the 30,000 mark for the first time in many months. The index closed yesterday at 29575 for a gain of over 11% this year.

Though Indian stocks have the potential for further growth, on a valuation basis they are second most expensive in the world according to a report by Citi. The current forward P/E ratio of 17.3 is well above its mean. Incidentally the US is the most expensive market based on this ratio.

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Source:India is one of world’s most expensive stock markets, Live Mint, Apr 10, 2017

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Discretionary Federal Spending 2016: Chart

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The US is the top country in terms of defense spending. None of the other countries in the world spend as much on military as the US does. According to a report by National Priorities Project, in 2016 more than half of the discretionary federal spending was spent on military. To put it another way, 53% or over $618.0 billion of the discretionary budget of $1.16 Trillion went to defense.

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Source: The Militarized Budget 2017, National Priorities Project

Because more than of the spending is diverted to building weapons and other military stuff, other parts of the economy get smaller funding. For example, food and agriculture got 1%, health got 6% and transportation received 2%. High defense spending gives the country the world’s most powerful military. But lack of adequate spending in other areas leads to poor quality infrastructure, health, education, housing, etc. For example, transportation industry is a mess from roads to railroads to airports with some airports looking like third-world countries.

Percentage Share of Total Employment That Depend on Exports for Select Countries: Chart

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The economies of some countries are heavily dependent on exports while others do not. A higher percentage of jobs in export-driven countries depend on exports. For example, Germany is a classic export-based economy unlike the US which is a consumption-based economy. So 30% of total employment is attributed to exports. In the US, the figure is only 10%. Other countries like Korea, Mexico, Canada also have high number of jobs dependent on exports.

It is surprising that a lower percentage of jobs are dependent on exports in China than other countries like Mexico, Canada, India, UK, etc.

 

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Source: The truth about Brexit, April 2017, The Absolute Return Letter, Absolute Return Partners