Following a period of strong outperformance in the past 2–3 years, the Indian equity market has lagged behind its global counterparts in the last year, generating nearly flat returns.
In fact, both Indian benchmarks – Sensex and Nifty 50 – have slipped nearly 2 per cent in last one year, giving negligible returns and raising concerns about stretched valuations in the Indian equity market.
“Currently, the index trades at a price-to-earnings (P/E) ratio of around 22–23 times, notably above its long-term average, while the price-to-book ratio hovers near 3.4 times and the dividend yield remains modest at approximately 1.3%. Moreover, India’s market-cap-to-GDP ratio has surpassed 139%, a level that typically signals limited upside unless earnings growth accelerates meaningfully,” said Seema Srivastava, Senior Research Analyst at SMC Global Securities.
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Srivastava further highlighted that the medium- to long-term outlook- of the Indian stock market remains favorable. Historically, the Nifty has delivered compounded annual returns of 12–17 per cent, supported by India’s structural growth trajectory. India’s growth story is anchored in strong fundamentals rising consumption, digital innovation, and a young, skilled workforce.
Government reforms i.e. recent GST 2.0, infrastructure expansion, and initiatives like Make in India and PLI are boosting industrial capacity
What’s behind the plunge?
According to Santosh Meena, Head of Research at Swastika Investmart, the key reason behind this underperformance has been sustained FII selling, driven by better opportunities in developed markets as well as in countries like China and Germany.
“ The recent global market rally has been largely led by AI-related stocks—a theme where India has no direct large-scale players. As a result, most of the incremental flows have been directed towards the US and China. Additionally, corporate earnings in India have remained muted for the past few quarters, while valuations were not particularly attractive. However, valuations have now reached more comfortable levels, and the growth outlook appears promising, which could rekindle FII interest in the Indian market going forward,” Meena said.
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Seema Srivastava of SMC Global said that India’s long-term trajectory remains robust, despite short-term macro challenges. “With resilient domestic demand and improving corporate governance, it offers compelling opportunities for long-term investors seeking sustainable wealth creation,” she said.
Srivastava further explained that the market is not in a bubble, it is priced for perfection, and current valuations can only be sustained if earnings growth picks up, domestic consumption remains resilient, global monetary conditions ease, and broader sectoral participation improves.
“In this scenario, maintaining investment discipline and focusing on carefully chosen stocks becomes essential to manage short-term market volatility,” she added.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.