Year-ender 2023: Bull rally on Dalal Street turns India most expensive emerging market

A whopping 30% rally from a 52-week low to lifetime high by benchmarks Nifty 50 and Sensex saw India making it to the top 10 best performing markets in 2023.

The overall market capitalisation of listed stocks crossed $4 trillion for the first time ever this year, with India ranking 4th in the world in terms of market capitalisation.

A strong earnings growth outlook, robust macroeconomic conditions and improvement in balance sheet strength of corporates have primarily driven the Indian growth story as well as the market rally.

After such a stellar run, saying that India is trading at premium valuations versus its long-term average as well as peers is no rocket science.

Indian markets are trading at premium valuations versus their long-term averages, both in absolute as well as relative terms, pointed out experts.

On a 1-year forward basis, India is trading at a price-to-earnings (P/E) multiple of 21.9 times, whereas the Emerging Market basket is trading at 11.7 times, according to a report by Axis Asset Management.

The consensus estimates for Nifty EPS growth for FY24 is 17-20%, and for FY25 is 14-15%. The recent upward revision in earnings estimates have also been resilient and better than the long-term trends. So, on a yield gap basis, the market looks stretched on valuations.Index Stocks Valuation
If we look at the performance of Nifty 50 stocks, then 16 stocks which have given double-digit returns in 2023, are trading above the industry average P/E, data by Ace Equity showed.

These include names like ITC, Titan, Nestle India, Maruti Suzuki, Bajaj Finance, Asian Paints, and Bharti Airtel among others.

Meanwhile, stocks like Reliance Industries, HDFC Bank, and Adani Enterprises, which have given single digit-to-negative returns this year, are also trading at valuations higher than the industry average.

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