India Tops Global List as the Most Expensive Stock Market

Manishi Raychaudhuri, the Head of Asia-Pacific Equity Strategy at BNP Paribas, has offered insights into the Indian stock market’s current valuation and growth prospects. According to Raychaudhuri, while the absolute valuation of Indian markets doesn’t appear excessively high, relative valuations may seem elevated when compared to other Asian countries, excluding Japan.

One key reason for this relative valuation gap, he explained, is the underperformance of North Asian markets, particularly China. However, Raychaudhuri highlighted that India has enjoyed a relatively stable geopolitical position over the past year, and he doesn’t foresee significant changes in this scenario, even amid diplomatic tensions with Canada.

Raychaudhuri stressed that investors, whether foreign direct investors or portfolio investors, primarily focus on market fundamentals, growth potential, and the impact of government policies on the domestic economy. As long as these factors remain relatively stable, he believes there won’t be significant shifts in foreign direct investment or foreign portfolio investment in India.

In light of the current market dynamics, Raychaudhuri recommended a cautious approach to investing in Indian equities. He emphasized the importance of careful stock selection, particularly within sectors and specific stocks that demonstrate earnings resilience, where earnings projections remain steady and are expected to grow.

India continues to present itself as a growth market, with promising economic and corporate earnings growth. Raychaudhuri advised investors to seek out relatively undervalued stocks in favorable sectors, which could lead to substantial gains. He acknowledged that this task might be challenging at times, but he suggested a strategy of identifying sectors likely to experience an increase in earnings estimates.

“The sectors which are appearing expensive today might appear cheap tomorrow if the earnings estimate itself goes up,” Raychaudhuri pointed out. He highlighted financials, especially private sector financial institutions gaining market share, and industrials with a growing order flow related to railways, defense, and government-sponsored infrastructure projects as sectors with potential earnings resilience. These developments are expected to positively impact private capital expenditure.

In conclusion, Raychaudhuri’s insights emphasize the importance of a selective and forward-looking approach to investing in the Indian equity market, with a focus on sectors and stocks poised for growth and earnings resilience.