Indian equities have become cheaper than they have been in six years after a sharp market fall driven by foreign selling, a weaker rupee, costlier crude oil and rising US bond yields. But that may not be enough to change the cautious stance of overseas investors, because Indian shares still cost far more than those of other emerging markets.
The dollar-denominated MSCI India Index now trades at about 18.5 times its expected earnings over the next 12 months. That is its lowest since May 2020. The index had touched a record 24.54 times in September 2024, when the Sensex and Nifty hit their all-time highs.
The multiple has come down from 22.5 times at the start of this year. It is also below the 10-year average of 19.7 times. Even so, investors do not seem to be rushing back into the beaten-down market.
Falls in dollar terms
Measured in dollars, the Sensex and Nifty have lost 18% to 19% so far in 2026. MSCI India is down 15.4%. Among major markets, only MSCI China, which has dropped 20%, has fared worse. Most others have risen.
Is the cheapness real?
Vivek Iyer, partner and CIO at Rational Equity Asset Management, questioned how cheap the market really is. According to him, the Nifty’s forward multiple looks low only if one trusts the earnings forecasts behind it. With crude where it is, he said, consensus estimates still have further cuts to come, so the true multiple is higher than the headline number.
Iyer also described the fall as largely a de-rating of large caps. Mid- and small-cap stocks, he said, still trade at a 50% to 70% premium to their historical medians. “The broader market has not reset at all. The reset is incomplete,” he said.
He added that the compression has been concentrated in stocks sensitive to crude and interest rates. These include oil marketing companies, paints, autos, aviation, cement, consumer discretionary and lenders. Foreign selling has been heaviest in these areas, he said, because the earnings risk from crude above $100 is greatest there.
The gap with emerging markets
Foreign investors usually compare India with regional peers. The MSCI Emerging Markets Index trades at 8.7 times forward earnings. That is down from 13.3 times at the start of the year and below its 10-year average of 12.05 times. India’s valuation is roughly double that of the emerging market group.
Other markets show a mixed picture:
– MSCI US trades at about 18.8 times one-year forward earnings, against a 10-year average of 19.2 times. It has gained 12% in dollar terms this year.
– Taiwan trades at 16.8 times and Japan at 15.4 times, versus 10-year averages of 15 times each. The two markets have gained 57% and 17% respectively this year.
– China trades at 9.2 times, compared with its 10-year average of 11.5 times.
The case for a premium
Supporters of Indian stocks argue that the market has always commanded a premium over peers because of its relatively stable corporate earnings outlook and broad base. Saurabh Patwa, head of equity and portfolio manager at Quest Investment Managers, said he would avoid setting a fixed India-EM premium as fair value. A meaningful premium, he said, is justified where businesses deliver superior earnings growth that lasts.
For now, many investors are not convinced. They point to faster growth in South Korea and Taiwan, where chipmaking and semiconductor industries are among the biggest gainers from the global AI boom. Patwa said that in the near term, AI and data-centre spending is creating stronger growth opportunities in such markets, which compete with India for global capital.
A fall in crude prices will be crucial for Indian equities, according to the market participants quoted.