Pricey valuations cloud India’s media stocks after Bollywood blockbusters, Cricket World Cup drive best sector rally in 14 years

Media-related stocks have been all the rage in India, thanks to a mega merger involving a unit of Japan’s Sony Group and the return of Bollywood movie blockbusters. Investors are now weighing the sector’s pricey valuations against the potential for future growth.

An equity index that tracks India’s biggest cinema operators and the nation’s top television broadcaster has lost about 6 per cent since reaching a 17-month high in early September. Still, this quarter’s 31 per cent gain is the best since 2009 while a weighted average gauge of 14 Asian peers including China Film and South Korea’s Hybe has lost more than 4 per cent.

Optimists are focusing on the coming pipeline of films featuring India’s biggest filmstars, and a potential boost to advertisement spending as the nation prepares to host the most iconic cricket tournament next month. Naysayers raise caution as valuation reached 26 times its one-year forward estimated earnings, versus a five-year average of 19.6 times.

“I expect to see some consolidation until the next earnings season as valuations remain high compared to their past averages,” said Karthick Jonagadla, a strategist at Quantace Research & Capital.

The Cricket World Cup is an important variable. In India, cricket enjoys a cult-like following, with its massive entertainment appeal rivalled only by Bollywood, as Mumbai’s film industry is known. India will host the 10-nation tournament from October 5 over 45 days, which will be live-streamed for free for half a billion smartphone users.

Their clout is unmatched in the local media and entertainment sector, which is touted as one of the biggest beneficiaries of a consumption boom. The sector is poised to grow at a compounded rate of 9.7 per cent every year to reach US$73.56 billion by 2027, according to a report by PwC in July.