Following a period of strong outperformance in the past 2\u20133 years, the Indian equity market has lagged behind its global counterparts in the last year, generating nearly flat returns.<\/p>\n
In fact, both Indian benchmarks – Sensex and Nifty 50<\/a> – have slipped nearly 2 per cent in last one year, giving negligible returns and raising concerns about stretched valuations in the Indian equity market.<\/p>\n \u201cCurrently, the index trades at a price-to-earnings (P\/E) ratio of around 22\u201323 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\u2019s market-cap-to-GDP ratio has surpassed 139%, a level that typically signals limited upside unless earnings growth accelerates meaningfully,\u201d said Seema Srivastava, Senior Research Analyst at SMC Global Securities.<\/p>\n Also Read | Trump H-1B visa fee hike: How tech stocks may react on Monday?<\/a><\/p>\n Srivastava further highlighted that the medium- to long-term outlook- of the Indian stock market remains favorable. Historically, the Nifty <\/a>has delivered compounded annual returns of 12\u201317 per cent, supported by India\u2019s structural growth trajectory. India\u2019s growth story is anchored in strong fundamentals rising consumption, digital innovation, and a young, skilled workforce.<\/p>\n Government reforms i.e. recent GST 2.0, infrastructure expansion, and initiatives like Make in India and PLI are boosting industrial capacity<\/p>\n What’s behind the plunge?<\/p>\n 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.<\/p>\n \u201c The recent global market rally has been largely led by AI-related stocks\u2014a 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,\u201d Meena said.<\/p>\n