Indian equities are still more expensive than equities of developed and emerging markets: Report
Nuvama research highlighted that the country's 12-month forward price-to-earnings (PE) ratio stands at 23.3, which is the highest among major global and emerging markets.
It is 1.6 standard deviations above its 10-year average, indicating elevated valuations compared to historical levels.
The report also shared that India's 12-month forward price-to-book (PB) ratio is also high at 3.4, which is 1.3 standard deviations above its 10-year average. This makes Indian equities significantly more expensive on both earnings and book value metrics.
In comparison, the United States follows closely with a 12-month forward PE of 22.4 and PB of 4.7.
While the U.S. PE ratio is at the same deviation from its 10-year average (1.6) as India, its PB is at a higher deviation of 1.9.
Other emerging markets like Taiwan (PE 16.1, PB 2.7), Philippines (PE 10.6, PB 1.6), and Indonesia (PE 11.2, PB 1.0) are trading at much lower valuations.
The broader emerging markets (EM) index has a forward PE of 12.8 and PB of 1.7, making India relatively more expensive.
India's return on equity (ROE) remains healthy, projected at 15.6 per cent for FY2025 and 14.5 per cent for FY2026. This is slightly lower than the USA's ROE of 17.1 per cent for FY2025 and 18.8 per cent for FY2026.
Emerging markets on average are expected to deliver ROE of 11.7 per cent in FY2025 and 14.4 per cent in FY2026.
Also, in terms of dividend yield (DY), India's yield is among the lowest across key equity markets at a modest 1.2 per cent for FY2025 and 1.4 per cent for FY2026.
Despite the premium valuation, strong fundamentals such as high ROE and growth potential continue to support investor interest in Indian equities.
These high valuation concerns have made the investors cautious for the Indian markets and the indices are in pressure from last 10 months with last high was made in September 2024. The Indian markets have corrected significantly but still the valuations as per report are high.
The elevated valuations may limit upside potential and increase vulnerability to global market corrections or domestic policy shifts. (ANI)
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