RBS Coutts , a private banking arm of Royal Bank of Scotland , finds Indian equities expensive and prefers China and other Asian markets to deploy its clients' portfolio funds . RBS, which manages over $1 billion worth of assets in India, has been trimming its exposure to domestic market and increasing allocation to foreign funds that invest in China-specific themes, natural resources and overseas mining companies, RBS strategists said.

"Indian stocks aren't cheap... though earnings are good, dividend yields of Indian companies are not that great. There is no currency play as the rupee is almost flat and is not expected to rise any time soon," Norman Villamin , executive vice-president and head of investment strategy (Asia), RBS Coutts, told ET in an exclusive interview. According to Mr Villamin, earnings growth is the only criterion that aids wealth creation in India.

In markets like China and Singapore , investors gain in terms of dividend payouts, appreciable corporate earnings, low valuations and currency play." "Though corporate earnings in China and Singapore are not as high as Indian companies, they are reasonably decent at 15-16 %. We expect currencies in China and Singapore to strengthen by about 5% in one year. So, I get a clear 500-bp additional gain due to currency appreciation," Mr Villamin said.

According to Mr Villamin, higher dividend yields also make several Asian markets more attractive than Indian equities. "Investors get higher dividend yields in markets like China and Singapore. It's not that I can't make money in India , it's the risk reward ratio that's different," he added. RBS strategists don't expect Indian equities to register immediate upsides from current market levels. At about 19 times price-to-earnings , India is an expensive market considering the absence of any "compelling positive surprises," they said.

The Sensex - at 18,469 points - has fallen over 6% over the past one month. "We've reduced equity exposure in portfolios of risk-averse investors . We believe valuations (of Indian companies) are a bit stretched compared with other Asian peers," said Prateek Pant, head of wealth solutions, RBS India, who was present at the interview session with Mr Villamin. RBS, in India, has been allocating money to China-specific theme funds and also funds that invest in global natural resources and mining companies.

"It is more to do with relative valuations of other Asian markets... Though corporate earnings are high, we are not expecting any compelling positive surprises with respect to Indian companies or markets," Mr Pant said, adding that he is bullish on industrial commodities and banking and neutral on gold. RBS, however, is using gold as an alternative to government securities (especially US treasuries) while constructing investor portfolios .

"As real returns on government bonds are mostly negative, we are reducing exposure to government bonds and increasing allocation to gold. In other words, we're substituting government bonds with gold," Mr Villamin said. He, however, warns non-US dollar investors to keep an eye on currency movement (against dollar ) while investing in gold. Inflation is a big concern in India. Inflationary pressure will have an impact on overall margins of Indian companies.

In countries like China where there are surpluses, rise in food prices or oil prices can be controlled by raising subsidies or allowing currencies to strengthen. The central bank in India only has liquidity tightening options to control inflation.