MSCI India consumer staples P/E shows downside potential … The MSCI India consumer staples’ P/E with respect to the MSCI India P/E chart shows that the sector-relative P/E is still high at +1 STDEV. This would seem to indicate potential for de-rating. Over the past 12 months, the Consumer index has delivered 36% absolute return (outperformed the Sensex by 6ppt).

… and we recommend investors use DBCMI Consumer sector valuations are still expensive as per DB Consumer Momentum Indicator (“DBCMI”, key to our sector top-down view – Figure 4). We believe the DBCMI is a good reflection of relative valuations (22-year backtested lead indicator), as it considers relative earnings momentum. According to DBCMI, the sector could relatively correct 12% to be in line with relative earnings, in our view (or relative earnings need ~13% upgrade).

Eoin Treacy's view

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The India consumer is benefitting both from improving standards of governance and the introduction of 4G late last year. Economic growth coming in above inflation coupled with a stable currency have all contributed to a steady environment for both consumers and investors with the stock market continue to march higher in a reasonably consistent manner.

The Rupee has been forming a first step above the 2016 base just about all year and is currently firming from the region of the trend mean. A sustained move below US$0.015 would be required to question medium-term recovery potential.

The Nifty Index broke successfully above 10000 in October and a sustained move below the trend mean, currently near 9600, would be required to question medium-term scope for additional upside.

The UK listed JPMorgan India Investment Trust is trading at a 12.6% discount to NAV and shares a similar pattern with the Nifty.

The US listed Columbia India Consumer ETF is outperforming the broad market and moved to a new all-time high today as it extends the breakout from the most recent range.