High price - earnings ratio of Indian stock market and investment by foreign financial institutions
Abstract
This paper explores the high level of the price-earnings (P/E) ratio of the Indian stock market in the context of investments
by foreign financial institutions. The measured P/E ratio may be high because of abnormally low earnings during 1991-92
and the high P/E ratios of foreign controlled enterprises. Even after adjusting for these two factors the P/E ratios is likely to
be high relative to historical levels and relative to P/E ratios of other emerging markets. However, given its excellent
diversification potential the Indian stock market may be attractive to foreign investors in spite of its high P/E ratio
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