Foreign investors have preferred India over South Korea among emerging markets since 2006 on better corporate profitability and better returns.
Now, there is a possibility that India could lose that competitive edge. According to Citi’s strategist Markus Rosgen, the gap in various parameters that led to investors preferring India over Korea is shrinking.
“Since 2006, investors have been overweight India and underweight Korea — India’s equity market has historically been viewed as more exciting than Korea’s, delivering better overall performance, both as a market and a corporate sector,” he said.
Now, Rosgen said Korea is catching up as India’s premium share valuations could lead to higher downsides.
These are some of the factors that Citi evaluated in its study:
Rosgen said financial ratios like return on equity (ROE), return on assets ( ROA) and return on invested capital (ROIC), which reveal how well companies are utilising capital to grow, are higher in India than in Korea but the gap has been closing. In real terms, Korea trumps India, when it comes to free cash flows, he said.
Source: Economic Times
