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Indian stock markets valuations are closer to their long-term averages after the correction of nearly 15 per cent since September 2024, says a report by Antique Stock Broking.
The report highlighted that the market cap-to-GDP ratio has declined significantly, though it remains above +1 standard deviation. This elevated level is largely attributed to the record equity supply in recent years. It said "Post the recent correction of around 15 per cent since September 2024, market valuation is now trading near long-term average valuation in terms of price to earnings, price to book, and bond-equity earnings yield basis" The report also mentioned that the foreign portfolio investor (FPI) equity outflows from select emerging market (EM) economies have reached approximately USD 54 billion since October 2024. India has also seen a significant portion of this outflow, amounting to nearly USD 22 billion. The outflows have been driven by a relatively higher downgrade in India's growth outlook and previously rich valuations. However, analysts believe that FPI selling pressure may ease in the near term due to multiple factors. FPI equity flows, as a percentage of market capitalization, are currently below -1 standard deviation, indicating that selling pressure could subside. The report said "We believe that the FPI equity outflow may recede in near term as FPI equity flow as a percentage of market cap below -1 Standard Deviation". Additionally, valuations have become more reasonable, and economic growth is expected to improve in the coming quarters, supported by monetary and fiscal measures. The report also noted that despite India's strong fundamentals, FPI ownership in the country remains low, which could encourage fresh inflows as sentiment stabilizes. The report added that the growth slowdown in India is more of cyclical in nature, primarily driven by monetary (slower credit growth) and fiscal tightening (lower government capital spending due to union and state elections). Helped by higher government capex spending of late both these factors have started reversing, resumption of a rate cut cycle (with another expected in April policy given benign food prices), liquidity injection, and tax sops, especially to the middle class in the union budget. Going ahead, the report also predicts the intensity of earnings downgrade to recede, given the expectation of a pick-up in domestic growth and reasonable earnings growth. (ANI)
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