Seeing Little Downside In Indian Markets

Below is a a chart from a recent Socgen report, which says valuations are now comfortable. This sounds reasonable.

Most reports tend to talk about one year forward P/Es. So they would say Sensex FY08 P/E is 15x. Everyone expects at least 15% growth in corporate profits, so 15x FY08 is a good number.

I tend to believe what one should look at is Sensex forward P/E one year from now. One year forward P/E in FY08 now is 13x. Now that is reasonable, since nominal growth rate of the Indian economy is 13x. That is what will give the market confidence about valuations.