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Growth momentum attracting investors despite high PE ratio: SEBI’s Buch

Securities and Exchange Board of India (SEBI) Chairperson Madhabi Puri Buch on Tuesday said despite high price-to-earnings (PE) ratio, overseas investors were getting attracted to the Indian capital markets on account of the velocity the economy was experiencing after years of high growth rates.

“Yes, at 22.2 ratio of PE multiple we have an expensive market; but still why is the investment coming? Because this is a reflection of the optimism and the trust and faith that the world has in India today that we are commanding these kinds of multiples in our markets,” Ms. Buch told a Corporate Governance Summit organised by the Confederation of Indian Industry (CII).

She said tax collections, especially Goods & Services Tax (GST) and Advance Tax were on a rise.  GST collections which began at more than ₹1 lakh crore a month is today at ₹1.68 lakh crore. 

“Look at the advance tax, which is nothing but a forward-looking statement by the economy as a whole as to how much profit will be made in the system, it is [growing at] 14% quarter on quarter. This is the velocity of it and this is what is giving us momentum,” Ms. Buch added.
She said the proxies for the real economy were petroleum-product consumption or electricity supply. 

“And again, you see the velocity at which the country is moving. How is this manifested in the market? And it’s amazing to see we talk about hockey-stick phenomena at an enterprise level. What we are witnessing is the hockey-stick phenomena at the aggregate economy level, at a market-wide level, at an ecosystem level,” she said. 

“So, if you see the way the market gap has gone, right from ₹74 lakh crore to ₹378 lakh crore, we are at one time GDP now. The growth has been phenomenal in just 10 years. You look at India’s weight in the Emerging Market Index which started at 6.6. Today, it’s 17.6,” she added.

“It’s just again, look at the hockey-stick effect. So, this is the velocity that we speak about. This is the momentum of India, the new India,” she further said.

Speaking about the Trading plus one (T+1) trade settlement cycle, the SEBI Chairperson said after the implementation of this cycle, there had been an improvement in defect-rate settlement as measured by delivery versus payment (DVP) ratio. [DVP is a method of settlement for the securities market.]

“Prior to moving to T+1 (trade settlement cycle) the defect rate was 0.7-0.8%. After the implementation of T+1, it halved to 0.3-0.4%. So, the entire process is far more optimal and efficient after moving to T+1,” she added.

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