January 2025
Valuations in India may remain elevated, but with the structural and fundamental story remaining bullish and the geographic opportunity set across Asia diversifying to a wider selection of investment destinations beyond China, the domestic capital market may see the IPO party extending into 2025.
Smart money, raised and initially earmarked for China’s public and private markets, is getting diverted elsewhere in the region, notably to India and Japan, followed by Taiwan, Australia, New Zealand and South Korea.
Nifty’s current PE ratio is below its 10-year average but valuations are still above Asian & EM peers. The premium valuations in the wake of slowing earnings growth have been a reason for foreign investors selling Indian stocks since the end of September 2024.
US is the only other market globally that is more expensive than India. Global investors are betting on the US to outperform most markets in 2025.
Most Indian sectors and themes are expensive compared to their recent historical averages. Banking, auto, consumption are some sectors where valuations have become attractive while FMCG, IT, metals and commodities are some sectors that are currently overvalued.
Services sector held steady at 7.1%. Services sector growth is expected to remain resilient, driven by rural recovery and support to purchasing power from government spending.