India’s long-term story remains strong, but valuations still a hurdle for foreign investors: Macquarie’s Viktor Shvets

"The bulk of the adjustment in India may already be behind us," said Shvets.

Global investors are once again warming up to India, drawn by its strong structural growth prospects and resilience amid global uncertainty. But while India’s long-term story stands out, its higher valuations continue to be a sticking point, says Viktor Shvets, global strategist at Macquarie.

In an exclusive conversation with Moneycontrol, Shvets said India has already gone through a phase of significant recalibration, both in terms of GDP growth expectations and stock market valuations. "We’ve seen a period of sell-down, adjustment of GDP growth rates, and adjustment for structural reform expectations,” he said. “But earnings per share (EPS) growth expectations remain too high."

He pointed out the mismatch: India’s nominal GDP growth is around 10 percent, but EPS growth is often projected at 17–18 percent. "It’s incredibly hard to justify that,” he said, hinting that further adjustment on that front may still be needed.

Still, the structural case for India remains strong. Shvets described India as one of the best-positioned long-term emerging markets with “a tremendous structural story” that sets it apart from much of the EM pack. "India is not growing at 8 percent, but it still offers one of the fastest sustainable growth rates globally," he said.

According to Shvets, that’s why India has long been treated differently from the broader emerging market universe, especially over the past 10 to 15 years. And now, as doubts grow over US exceptionalism, some of that global capital is being reallocated.

"What we’re seeing is investors coming back to India, partly because the belief that the US is uniquely positioned no longer holds to the same extent," he said. "But this reallocation is very selective. It’s not flowing into cyclical markets like Malaysia or Indonesia. It’s going into structurally sound stories—and India is one of them."

However, elevated valuations are preventing a more aggressive foreign inflow, particularly when compared to India’s actual earnings potential. While the broader macro and policy framework remains supportive, investors may wait for a more realistic alignment of earnings expectations and valuations before committing further. "The bulk of the adjustment in India may already be behind us," said Shvets.