CEO Survey: Are Indian markets overvalued?

A pre-budget survey of CEOs conducted by Moneycontrol in association with Deloitte has found that a majority of the top honchos believe that the Indian markets are moderately overvalued even as a sizeable chunk is of the view that it can be termed either stretched or fairly valued as well.

According to the survey, 55% of the CEOs find the current valuations moderately overvalued, 22% as stretched, 21% as fairly valued, and 3% as undervalued.

This assumes significance as the Indian stock markets are booming with both the benchmark indices -- Sensex and Nifty – touching record highs consistently. The liquidity push from both foreign and domestic investors has ensured that the Sensex breached the 80,000 level with the broader Nifty also moving above 24,500.

Further, Nifty is currently trading at 24.80 times P/E, above the 10-year median of 23.5. Analysts expect it to trade around 18.97 times FY25 P/E, suggesting it is slightly overvalued now but undervalued long-term.

Interestingly, majority of market participants are of the view that the valuations of the Indian stock market are healthy and even if slightly on the higher side, reflect the strong growth potential of the economy as well as robust earnings outlook.

Also Read | What can Union Budget 2024 deliver to excite markets further?

“The Indian economy’s potential is sustainable in the longer term and stock market valuations look healthy but are moderately overvalued at the moment,” says Jimeet Modi, Founder & CEO, SAMCO Group.

“The Indian stock market is approaching two major events during the current month. The onset of Q1FY25 earning season and presentation of Union Budget at the fag end of the month. Both the events are potential enough to impact the market. Keeping this in mind and the current level of moderately overvalued valuations our view is to book some profit and keep some cash in hand. This will be useful in the event of a setback in the prices post earning season and budget presentation,” explains Modi.

In a similar context, Feroze Azeez, Deputy CEO, Anand Rathi Wealth says that the Indian GDP is growing steadily and is expected to grow at 7 percent going ahead, which is being reflected in the markets.

Also Read | Budget should go beyond the hard buildout

“Current stock market valuations in India are healthy and reflect the country's growth potential… The large cap and the small cap are fairly valued with the midcap segment being slightly overvalued. Long-term investors should prioritise equity over debt, focusing on a diversified portfolio across market caps, categories and AMCs,” says Azeez.

“With SIP contributions reaching a remarkable new peak of Rs 21,260 crore in June, it is clear that Indian investors are resilient and committed to long-term market growth,” he adds.

Data from the Association of Mutual Funds in India (AMFI) shows that the monthly SIP net flows stayed above the Rs 20,000 crore mark for the third successive month in June to touch a new record high. The current financial year has already seen cumulative flows of Rs 62,537 crore coming through SIPs in the first three months.

Also Read | Budget 2024: Catch the next wave -- here are the three themes to watch

Market participants believe that the robust SIP flows corroborate the fact that Indian investors are ready to bet on the stock market on the back of strong earnings and growth potential.

“Currently, the stock markets appear to be reasonably valued. The increase in profitability among Nifty 50 companies has been robust, growing at an annual rate of 18% since FY19… This growth in earnings suggests that the rise in equity valuations is well-supported,” says Amit Pabari, Founder & CEO of CR Forex.

“Other positive factors contributing to market optimism include strong economic growth, potential pro-growth measures expected in the upcoming budget, political stability at the central level, and indications from US economic data pointing towards diminishing resilience, supporting the equity markets globally as the Fed shall cut the rates,” adds Pabari.

Arun Kumar Poddar, CEO & Executive Director, Choice International, also believes that the current stock market valuations in India are healthy and accurately reflect the country's potential.

“Over the past decade, India has made significant strides in infrastructure, the defence sector, and manufacturing, which have collectively strengthened the country's economic foundation and led to reasonable and healthy market valuations,” he explains.