1. 1 Comments on Mehra: Indian Equity Markets Surjit S. Bhalla* July 15, 2009 Brookings-NCAER IPF 2009, New Delhi, India *O[x]us Research & Investments, New Delhi Email: ssbhalla@gmail.com

2. 2 Determinants of growth, industrial growth and corporate valuations Valuation of stock market, overvaluation, over and under Important role of buyers (middle class FIIs) ; Important role of interest rates Comparison with other countries Main Points

3. 3 Indian growth performance in three steps

4. 4 India China: Comparable growth in Capital Stock

5. 5 Figures in parentheseis denote country wise 10 year growth (moving average) in manufacturing and industry respectively Countries Where Industrial growth has averaged over 7% for a Decade – India Not One (as yet)

6. 6. Consequence of middle class: low world inflation

7. 7 Real interest rates and economic growth

8. 8. Indian Equity Markets Diversity of Companies Country Top 10% Top 20% Top 30% United States30.347.559.6 India40.359.469.7 Korea42.458.870.6 France47.366.878.5 United Kingdom50.56878.9 Germany52.673.684.9 Brazil67.58086 China68.680.887.6 Russia7791.997 *Weight of Top 10/20/30 companies in the total market capitalization of the Top 100 companies Indian capital markets –More diversified with 21 sectors –Lower concentration of market capitalization in the top 10/20/30 companies (similar to the US) Diversification vs. commodity play Russia (69%) and Brazil (48%) - are mostly driven by commodity sectors versus India ( 31%) 41 of the top 100 performing companies in the world were in India and 32 of those were small-caps (Russell Investments, 2007)

9. 9. Sensex earnings have kept pace with price growth: 1990-2008

10. 10. Sensex P/E Ratio 1995-2008: Overvalued?