A research report from international brokerage Bernstein points out that the high valuations of the Indian stock market are significantly diverging from its weak earnings growth prospects, diminishing its attractiveness as a market to absorb funds after the global AI trading correction. Based on MSCI country index comparisons, the Indian stock market's forward 12-month price-to-earnings ratio is 18.6 times, higher than the global market's 17.6 times, ranking first among the major markets compared in the report.
However, India's projected compound annual growth rate for earnings per share (EPS) from 2025 to 2027 is only 11%, significantly lower than the global average of 27%. Bernstein notes that while the valuations of large-cap Indian stocks have partially declined, small- and mid-cap stocks remain expensive, and corporate earnings forecasts continue to be revised downwards, making it difficult for the current growth prospects to fully support the valuation premium.
Bernstein believes that even if global AI-related stocks experience a significant correction, the released funds may not necessarily flow to India. India still needs to compete for international capital based on valuation, earnings growth, risk levels, and dollar-denominated returns. Potential catalysts for the next phase of the Indian stock market mainly come from the US midterm election results, the decline in oil prices due to easing tensions in the Middle East, and the potential reduction in long-term capital gains tax.
