Indian equities now trade below long-term valuations, but are they cheap? No, say analysts

Both the Sensex and Nifty have declined by around 14% from their September highs, while the broader markets saw even steeper losses

Following the recent sell-off, India's benchmark indices, Sensex and Nifty are now trading at a discount to their long-term average one-year forward price-to-earnings (P/E) ratios.

Analysts, however, say that this does not necessarily make Indian equities "cheap." They are more reasonably valued than they were at their peak (when Nifty’s PE neared 25x), and the discount to their long-term average offers some comfort, they say.

Currently, the Sensex and Nifty are trading at one-year forward P/E multiples of 19.09x and 18.45x, respectively, compared to their 10-year averages of 19.3x and 18.5x. This marks a notable decline from their September levels of 21.5x and 21.3x, respectively.

In the broader market segment, BSE MidCap's current one-year forward P/E stands at 24.55x, compared to its 10-year average of 24.06x, while BSE SmallCap's one-year forward P/E is at 20.73x, versus its 10-year average of 19.02x.

Anurag Seth, Co-founder and CEO of Aevitas Capital, says that "cheap" implies a bargain that’s hard to pass up, and we’re not quite there—especially with risks like FPI outflows and global volatility lingering.

Meanwhile, major global indices, including the S&P 500, Dow Jones, Nasdaq, DAX, Nikkei, CAC 40, Shanghai Composite, and Hang Seng, continue to trade at premiums to their long-term averages. Experts suggest that compared to premium-priced global indices, India looks relatively attractive if you believe in its growth story, but it is not a fire sale. For long-term investors, this could be a decent entry point, but expecting a quick rebound might be optimistic without clearer earnings catalysts, experts added.

Kotak Institutional Equities in its latest note said it believes Nifty valuation is high considering earnings CAGR of 14% in FY26 and FY27, with downside risks to such estimates. Hence, they don’t expect a meaningful upside to the Nifty in the short term. Conversely, the downside to the NIFTY is protected by India’s strong medium-term growth prospects which should keep valuations elevated, and a likely better foreign and domestic liquidity environment in the second half of FY26, it said.

The broking firm major remains cautious on the outlook for small/mid-caps in general due to expensive valuations in many cases. It has been negative for a while and despite the -13 percent and -18 percent year to date correction in the BSE MidCap and BSE SmallCap indices, they do not believe the valuations have come down enough.

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Indian markets have witnessed a sharp correction from their September peak due to elevated valuations, concerns over slowing growth, weaker earnings, and global uncertainties, including fears of a tariff war following the election of US President Donald Trump.

Both the Sensex and Nifty have declined by around 14% from their September highs, while the broader markets saw even steeper losses, with the BSE MidCap and BSE SmallCap indices dropping over 21% and 20%, respectively.

Interestingly, a section of experts believe that over the past few years, there has been a remarkable improvement in the depth of the Indian markets to the extent that the Nifty and Sensex are no longer a true barometer of the broader market. So, whilst large cap valuations have become reasonable, broader market valuations still remain elevated, especially in the context of slowing earnings growth

"So, unless earnings growth prospects pick up materially or valuations continue to correct meaningfully, we don’t see the broader market offering an attractive entry point just as yet. Having said that, to the extent that timing the market is no one’s cup of tea, we recommend investors stick to a disciplined and systematic approach to asset allocation" said Pramod Gubbi, Co-Founder at Marcellus Investment Managers.

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