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'Stock markets in developing countries are riding a wave of optimism.'

Nothing describes the word 'optimism' better than run up we have seen in the past three months. This has been the sentiment prevailing in emerging markets such as China, Brazil and India. As the IHT puts it 'Stock markets in developing countries are riding a wave of optimism.'In hopes that the global economy is recovering and that the developing nations worldwide are leading this recovery, markets have surged tremendously over the past few months.

However, the gains recorded in India have been greater to those witnessed in Brazil and China. There have been various reasons for the same - UPA coming back to power, improving auto sales and growth in production levels of core sectors, amongst others. But things have not been so different in the other two countries as well. China has witnessed its industrial production levels rebound, while retail sales in Brazil have seen an increase in recent times.

However, on comparing the indices valuations, the situation is a bit different. While India's BSE-Sensex and Brazil's Bovespa indices are trading at a price to earnings ratio of around 21 times each, China's CSI-300 Index is trading at a much higher multiple of 29 times. It may be noted that during the first week of March, the Sensex was trading at a P/E ratio of around 11 times. Has the scenario changed so much that the index is commanding such high valuations? I dont think so!

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