The recent recovery in stocks has meant India remains among the most expensive in its peer group at a time when there are serious concerns on economic growth and corporate earnings. In a stunning rally, the benchmark Nifty gained 1,769 points (or 8%) from its recent lows of 22,082.65 (on March 4) to close at 23,851.65 on Thursday.
The Sensex has rallied 5,563 points (or 7.6%) from 72,989.93 to 78,553.20 in the same period. As a result, the Nifty now trades at a multiple of a little over 20 times one-year forward estimated earnings, according to Bloomberg data. This is much more expensive than, for instance, the Korean Kospi which trades at a multiple of just under 9X. The Chinese market trades at a shade under 15X while Taiwan trades at 13.8X.
Of course, the Indian market today is far less expensive than it was in the September-December period of 2024 when the Nifty was trading at over 23X and especially in early October when it hit a multiple of close to 24X.
However, in the aftermath of the US’ tariff blitzkrieg and the potential damage it could cause to the Indian economy which is already slowing down, the growth in earnings could belie expectations. “There’s little comfort in valuations,” the CEO of a leading mutual fund said, adding that it is largely liquidity that is driving up stock prices. Owing to the direct impact of slowing global growth and trade, India’s GDP is now expected to clock in at a little over 6% in FY26, lower than previous estimates of 6.4-6.5%. Strategists at Morgan Stanley wrote recently the uncertain global environment has prompted them to lower earnings estimates.
“Our FY26 earnings estimate is down 13%, driven by the global situation,’ Upasana Chachra and Ridham Desai said, saying that domestic growth has support from improved government spending and a dovish Reserve Bank of India (RBI). “India’s medium-term earnings cycle is still intact, in our view,” they observed.
Strategists at HSBC Global Research pointed out that adjusting for volatile items, the earnings per share has grown by mid-single digits since the June quarter. “This weakness is set to continue in the next quarters. FactSet consensus expects growth of below 5% y-o-y in Q1, and we do not expect a strong earnings rebound this year,” Herald van der Linde and Prerna Garg noted. They argue that private capex is yet to pick up, urban consumption remains soft, and growth in IT services could be weak amid policy uncertainties in the US. “We believe growth concerns will linger for some time.”
Some brokerages have more sober earnings growth expectations. Ahead of the March quarter earnings season, Kotak Institutional Equities (KIE), for instance, pegs the earnings estimates for the Nifty 50 at Rs 1,145 for FY26 and Rs 1,312 for FY27. Going by these estimates, the Nifty at current levels, trades at 20.8X (21 times of FY26 earnings and 18X of FY27). For the BSE 30 companies, KIE estimates earnings at Rs 3,772 for FY26 and at Rs 4,356 for FY27.