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The eyes of investors around the world are currently focused on the global stock markets. Everyone wants to know which is the best country for investment among emerging economies. It is generally believed that India is among the fastest growing large economies of the world, due to which foreign investors will be most attracted here. But the latest report by global investment bank Goldman Sachs has changed this perception. Goldman Sachs says that India’s long-term story may be strong, but at present the stock markets of South Korea and Taiwan appear more attractive for investment than India.
Why are the markets of North Asia strong despite heavy selling by foreign investors?
For the last two years, there has been a hot discussion that foreign institutional investors (FIIs) are withdrawing money from the Indian stock market on a large scale, due to which pressure was seen on the market. However, Goldman Sachs’ analysis rejects this argument. According to the bank, if the market had run only on buying and selling by foreign investors, then South Korea should have been the weakest market at this time. If we look at the figures, this year foreign investors have sold shares worth about $100 billion in the South Korean market, whereas in India this sale has been only around $20 billion. Despite this, the markets of South Korea and Taiwan are performing better than India.
The huge gap in corporate earnings that left India behind
The most important factor emphasized in the Goldman Sachs report is corporate earnings. The stock market of any country ultimately depends on the profits of the companies there. On this front, India currently seems to be lagging far behind the North Asian countries:
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South Korea: This year, the earnings of the companies here are expected to increase by a record 320 percent.
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Taiwan: Earnings of companies in this market are expected to grow at the rate of about 48 percent.
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India: Earnings of Indian companies are expected to grow by about 10% this year (the bank has increased it from 8% to 10% after the fall in crude oil prices).
Attractive valuations of Taiwan and South Korea and magical speed of AI
The comparison of the markets of India and Taiwan is quite interesting. India’s market is currently trading at around 20.5 times Forward Earnings, while Taiwan’s is at 21 times. That is, the prices of both are almost equal, but Taiwan’s earnings growth is expected to be 48% this year and 30% next year, which is much more attractive compared to India’s 10% and 13%. On the other hand, the South Korean market is trading at just 6.6 times forward earnings, indicating extremely cheap valuations.
Apart from this, the race for Artificial Intelligence (AI) going on globally is proving to be a boon for both these countries. South Korea and Taiwan control the entire global supply chain of powerful semiconductors, chips and hardware needed to run AI. By the year 2030, the demand for computing power is going to increase 24 times and big tech companies are going to spend more than 1 trillion dollars on AI, which is directly benefiting both these countries.
Good news and path to the future for Indian investors
However, Goldman Sachs is not completely disappointed about India. The fall in crude oil prices has reduced the pressure on the Indian economy and the rupee has also stabilised, due to which Nifty’s earnings growth estimates have improved. The bank clearly says that the day Indian companies start earning fast and sustainable profits, the trust of global investors on India will become the strongest. The biggest lesson for common investors is that in the long run the market is driven not just by news but by the actual earnings of companies.
