'Emerging stocks still a buy'

Thu, 27 Jan Pre-Open

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Yesterday Indian markets were closed on account of the Republic Day Holiday. But the rest of the week is unlikely to see a lot of fireworks from the bulls. Already, benchmark indices were down significantly on Tuesday. This was mainly on the back of the central bank's decision of hiking interest rates on yet another occasion. The RBI has thus made its intentions pretty clear with the seventh hike that it went in for since March 2010. Its priority right now is to tame inflation. If it comes at the expense of a bit of a slowdown in economic growth, so be it.

Little wonder, Indian stocks are finding very few takers these days. Especially the FIIs who've now focused their attention towards the relatively undervalued markets of the west.

Amidst such a scenario, it is difficult to be bullish on India. Or to be more general, toward emerging market stocks. But there is one man out there for whom emerging markets are still the markets to be in. And he is none other than the emerging market guru, Mark Mobius.

As per Moneynews, Mobius recounted a recent conference call on his blog where investors asked him whether emerging markets had become expensive.

Certainly not as per Mobius. He is of the view that emerging markets are likely to grow three times as fast as developed markets in 2011 and hence, at these growth rates, the opportunities could be outstanding as per him.

Well, no one doubts the fact that emerging markets would continue to far outperform developed markets when it comes to economic growth. But the question that needs answering is whether valuations in emerging markets already reflect the high growth.

Mobius made an attempt to answer this question as well. He opined that valuations certainly aren't as cheap as they used to be some time back. However, they are still not as expensive as they were during the very height of bull markets of the past like Asian financial crisis of 1997. Infact, as per Mobius, valuations are in the middle of the historical range.

As far as India is concerned, even we believe that valuations do not seem excessively high at the moment. Of course, some stocks could be expensive, but there still some good long term stories available out there that are trading at decent valuations. Thus, while a blanket buy approach may not work here anymore, good quality picks are definitely available for someone wanting to do his own research.

The central bank may have hiked interest rates, but an economic growth in the region of 7%-8% is perhaps given and such a growth rate does lend itself well to profitable stock picking opportunities from the long term perspective.