1 month ago
The extended selloff in the Indian equity market is showing no signs of abating. The Nifty500 index, which accounts for about 90% of the country’s market capitalisation declined 1.4% in Monday’s (Feb 10) trade with both midcap and smallcap indices falling 2.2% each.
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Foreign portfolio investors (FPIs) continue to offload Indian shares, citing rich valuations and slowing economic growth. Overseas investors have withdrawn nearly $22 billion from the market on a net basis since the end of September last year, with this year’s sale tally approaching the $10 billion mark.
Stocks in India have suffered in recent months as concerns over a slowdown in economic and muted growth in corporate earnings prompted foreign investors to reduce their exposure to the fifth largest equity market in the world.
However, despite the recent correction, most stocks are trading way above their historical averages. For instance, both the Nifty Midcap Index and Nifty Smallcap indices have come off nearly 15% from their highs in 2024.
Despite the steep fall, Nifty Midcap is trading at 30 times its one year forward earnings whereas Nifty Smallcap commands 23x its one-year forward earnings, according to Bloomberg data. It's expensive compared to the price-to-earnings ratio of 20 times commanded by the blue-chip stocks that make up the Nifty50.
Small and midcap stocks bore the brunt in today's sell-off. Among the Nifty500 constituents, virtually all stocks have lost value with nearly half of them losing over three-fourths of their value.
While 85 stocks including Sun Pharma Advanced Research and state-owned companies like CPCL, MRPL, Cochin Shipyard, Shipping Corporation of India have lost anywhere between 40% to 67% from their 52-week highs, another 238 companies from the index have seen erosions between 25% to 40% from their highs.
Despite being one of the fastest growing economies in the world, stocks listed in India are still the most expensive. In fact, Chinese stock have done better than India's benchmark so far in 2025.
While the Nifty50 has declined 3.5% in dollar terms since the beginning of the year, Chinese Shanghai has declined less than 1% during the same period. “The most expensive market in the world is India, and no amount of handwaving about the India story can justify paying 31 times earnings, 3 times revenue, and 20 times EBITDA, in the aggregate, for Indian companies,” Aswath Damodaran, professor of finance at New York University (NYU) wrote in a blog post recently.
Damodaran, the valuation guru, further added that the US and China also fall into the expensive category, trading at much higher levels than the rest of the world on all three-pricing metrics.
