India's place in Asia

I ran a screener (thanks to Tikr) to compare the universe of listed stocks in India, China/ HK, South Korea and Taiwan. This is just for educational purposes and the summary is as below. Copying the link for a blog I have created as I am unable to copy tables here.

I had taken only companies with greater than USD 1 bn in market cap. The summary is as follows:

  1. Indian companies trade at much higher valuations than their Asian counterparts
  2. The higher valuations can be justified to some extent as Indian companies have much higher capital efficiency and historical growth rates
  3. India has the lowest free float among all the countries, which would also be a big reason for the higher valuations
  4. At the lower end of the market cap spectrum, < USD 2.5 bn, there seem to be fewer listed companies.

I have also looked at Banks in India and China and the general observation is still the same, Indian banks are more capital efficient and enjoy much better margins than China (though that may not be a good thing from a national development perspective).

  1. The reporting by Chinese banks is much better and more standardised with relevant data than reporting by Indian banks, which is not standardised and all over the place
  2. A key observation across both countries is that retail focused banks have done better than corporate focused banks and get a higher valuation multiple (no surprise)
  3. Indian banking sector is even more consolidated than the Chinese banking sector
  4. Government banks get lower valuation multiples though government banks in China are at least in a leading position whereas in India they seem to have lost their way. For example in terms of assets there are 2 other government owned banks in India that are bigger than KMB and Axis but their valuation (performance has not been great either) has put them out of the list.
  5. Government banks in China seem to be doing much better than their Indian counterparts and holding their own against private competition (on an unrelated note the government control of the banking sector has been shown to be one of the factors for rapid economic growth in Asia in How Asia Works by Joe Studwell. Review at Ravi Srikant’s review of How Asia Works: Success and Failure in the World's Most Dynamic Region). It is a great book and a must read.
  6. Chinese bank shares look to be trading quite cheap even accounting for the lower metrics
  7. The Chinese economy is highly leveraged, even after accounting for the 5x differential in GDP between India and China
  8. Banks in China operate at roughly half the NIM of Indian banks, which is a big difference which accounts for the lower RoE’s but it is offset by lower Cost-Income ratios