Comparing U.S and Indian Stock Markets
Bangalore: Stock market performance in the current year has resulted in the U.S. Dow Jones Industrial Average suffering a large discount to India's Sensex.
While a rupee of earnings of the 30 stocks that make up the basket of stocks constituting the Dow Jones Industrial Average can be bought for Rs. 16.3 - Price-Earnings (P/E) ratio, the Sensex basket goes for Rs. 20.3 for the same one rupee of earnings, measured on historical profits. That has made a host of big U.S. stocks such as Microsoft, IBM, Exxon, and Coca-Cola cheaper to own than many Indian stocks, reports Business Line.
The market seems to have more faith in the ability of an average Indian spending on consumer goods/services than in that of the average American. The U.S. companies whose revenues depend on consumer spending (for example, FMCG, telecom and banking), trade at considerable discounts compared to their Indian counterparts.
For instance, Hindustan Unilever and ITC trade at P/Es of 24.7 times and 29.0 times respectively, while the American giants such as Coca-Cola, Johnson & Johnson, Kraft Foods and McDonald's trade at a much cheaper 13-19 times.
The picture is more or less the same with Indian IT firms as well. Infosys, TCS and Wipro are far more expensive than the American big-wigs such as Cisco, General Electric, Hewlett-Packard, IBM and Microsoft. The Indian companies sport a PE of 22 -25, making IBM and Hewlett Packard, at just over 13, seem positively cheap. Microsoft is trading at 18 times, still a lot cheaper to the Indian market. Intel (at 23.02 times) is the only tech company that trades at valuations on par with the Indian tech majors.
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