8 hours ago
A strong rebound of over 10% from its March lows has pushed the Nifty50’s valuation back to 20 times its one-year forward earnings. Additionally, the Indian market’s recent outperformance relative to other emerging peers has pushed the Nifty50’s valuation premium over the MSCI Emerging Markets (EM) Index to 72%—its highest level since September 2024.
This elevated premium comes despite the index still trading about 7% below its peak from that same month.
The surge in valuation premium is largely attributed to the Nifty50’s strong performance relative to its Asian peers, especially China and Taiwan. China holds the highest weighting in the MSCI EM Index, followed by Taiwan and then India.
Since the start of the year, the Nifty50 has gained 3.1% in dollar terms, while China’s CSI 300 Index and Taiwan’s TAIEX have declined by 3.6% and 14%, respectively.
The Nifty50 hit a record high of 26,277 points on September 27, 2024, before retreating by 16% over the following five months to a nine-month low of 22,083 points. Despite this correction, Indian equities continue to trade at elevated valuations.
The Nifty50 is currently priced at 20 times its one-year forward earnings, in contrast to Chinese stocks, which are trading at 15.5 times forward earnings. Meanwhile, Korea’s Kospi trades at under 9 times, and Taiwan’s TAIEX at 13.5 times forward earnings, according to Bloomberg data.
Market participants are urging investors to temper their return expectations in the near term. “When earnings growth is in the single digits, it’s hard to argue that the market is fairly valued at a 20 P/E,” said Manish Chokhani, Director at Enam Holdings.
“Some earnings will come through and trigger rallies, but those gains are likely to be sector-specific. I don’t foresee a broad-based rally across the board. India isn’t exactly cheap at the moment—though valuations are more reasonable than they were,” he added.
Robust March quarter results from leading private lenders—HDFC Bank and ICICI Bank—fueled sharp rallies in their stocks, propelling the Nifty Bank Index to a record high. With the banking sector carrying the highest weight in the broader Nifty50, these two banks alone have accounted for nearly one-third of the index’s gains since its March lows.
Gautam Duggad of Motilal Oswal Financial Services forecasts a 12% earnings growth for FY26 (excluding commodities), compared to just a 1% rise in FY25. If these projections hold true, he expects market returns of 10–12%, consistent with long-term historical trends.
“Ultimately, the market follows corporate earnings,” he noted, emphasising that over time, index performance tends to align with earnings growth.
