India costliest market, no quantity of handwaving can justify valuation: Aswath Damodaran, ETCFO
India is the most costly fairness market on the planet, and “no quantity of handwaving” can justify its present valuation ranges, in keeping with “Valuation Guru” Aswath Damodaran, a professor of finance at New York College and a number one professional on valuation.
In his newest weblog put up, Damodaran highlighted that India trades at a staggering 31 instances earnings, 3 instances income, and 20 instances EBITDA in combination—multiples that far exceed international averages. “On a PE ratio foundation, the most affordable international locations of the world are principally in Africa and the most costly are India and China, with the U.S. additionally making the record,” Damodaran mentioned.
The veteran valuation professional, generally dubbed as “The Dean of Valuation” by the media, in contrast India’s pricing metrics with different markets, noting that whereas buyers stay captivated by the nation’s long-term development potential, valuations have surged to unsustainable ranges. “To take a look at variations in pricing throughout markets, costs must be scaled to commonalities—revenues, earnings, money flows and guide worth. Including in timing selections (present, trailing, ahead), the alternatives proliferate,” he defined.
The U.S. and China additionally ranked among the many pricier markets in Damodaran’s evaluation, however India’s premiums stood out.
Damodaran emphasised that areas with the very best development usually commerce at a premium whereas riskier markets are likely to have decrease pricing multiples. “Utilizing three pricing ratios—PE, EV to EBITDA and EV to Gross sales—and looking out throughout areas, you’ll be able to see extensive variations, with the riskiest components of the world priced low and the very best development buying and selling at the next pricing,” he famous.
Regardless of cooling off in 2024 with single-digit worth appreciation, Indian equities stay costly throughout all key valuation measures. The Nifty 50 and Sensex indexes each outperformed international friends over the previous decade, supported by sturdy company earnings, coverage reforms, and a booming retail investor base. Nonetheless, Damodaran cautioned that such excessive valuations require equally strong earnings development to be justified—one thing buyers needs to be cautious of.
“On the proper worth, you ought to be keen to purchase shares even within the riskiest international locations, and particularly so after turbulent (down) years. On the mistaken worth, even the most secure market with nice historic returns are unhealthy investments,” Damodaran wrote in his weblog.
Damodaran additionally pointed to broader macroeconomic forces shaping international markets. “As 2025 begins with a bang, with tariff and commerce wars looming, there’s a sense that after 4 many years of seemingly unstoppable development, globalization has crested, and nationalism is again in vogue,” he remarked.
“Commerce wars (and tariffs) will make the world collectively much less properly off, however like all international shocks, they are going to create winners and losers, and the check for buyers is getting on the fitting aspect of that divide,” Damodaran mentioned in a put up on X, previously generally known as Twitter.
The U.S. greenback’s energy additional provides to the complexity of worldwide fairness pricing. “The greenback strengthened in 2024, extra towards rising currencies than developed ones, up about 9.03% in the course of the course of the 12 months,” Damodaran famous. “Authorities bond charges and risk-free charges diversified broadly throughout currencies, with inflation expectations being the wild card.”
Damodaran’s evaluation serves as a cautionary observe for buyers betting on Indian equities. Whereas the nation’s financial development story stays compelling, he means that paying a hefty worth for that narrative might result in disappointing returns.
Additionally learn | 3 out of 4 Nifty 50 corporations noticed EPS cuts in January 2025: JM Monetary
(Disclaimer: Suggestions, recommendations, views and opinions given by the consultants are their very own. These don’t symbolize the views of Financial Occasions)
