Even after the sharp correction in domestic equities, the investment opportunity still remains less attractive than other emerging markets, said Kotak Institutional Equities in a note, as cited by Moneycontrol.
The brokerage firm said that the recent correction in the Indian stock market due to the West Asia crisis had improved valuations, but it was not enough to attract deeper investment interest.
Emerging markets such as South Korea, Taiwan, Indonesia, and Brazil are projected to report stronger earnings growth in FY26 and FY27 at significantly lower valuations.
The note highlighted that even though the Nifty was trading at 19.3 times one-year forward earnings, it still remained more expensive than South Korea at 8.3 times and Hong Kong at 11.6 times.
India’s earnings outlook and valuations have continued to weaken in comparison to global peers. This has diminished the relative value case for global investors despite India’s intact long-term story, it added.
Moreover, the margin of safety has also reduced in the domestic market as the gap between India’s equity earnings yield and government bond yields has narrowed.
This has made the market prone to renewed risk aversion.
Since the onset of the war in West Asia, the macroeconomic outlook of the country is also under pressure. While it is expected that the conflict may be a short-term disruption, risks will be compounded if the crisis persists for longer, with heightened oil prices hurting the most.
The warring sides have been following a ceasefire since early April, but the closure of the crucial Strait of Hormuz has kept crude prices elevated.
No meaningful progress has been made since the ceasefire, with the first round of peace talks ending without any breakthrough, while the second round is still to take place.
On the positive front, the brokerage indicated that India’s earnings may remain relatively resilient if the crisis prolongs. In the Nifty-50 index, about half of the net profit is derived from sectors such as utilities, IT services, metals and mining, pharmaceuticals, oil and gas, and telecommunications, which have limited linkage to domestic economic conditions.
