India’s valuation edge over US stocks disappears for the first time in 15 years

In the October-December 2024 quarter, corporate earnings in the US grew by 16 percent, whereas in India, earnings grew only 6 percent.

A five-month selloff in the Indian stock market has ended the country’s long-standing valuation premium over the US. The BSE Sensex is now trading at a lower price-to-earnings (P/E) ratio than the Dow Jones Industrial Average for the first time since 2009, according to Bloomberg data.

The Sensex is currently valued at 21.8 times its earnings from the past year, down from 23.8 times in March 2023. Meanwhile, the Dow’s P/E ratio stands at 22.4 times, slightly lower than 22.8 times a year ago.

Historically, the Sensex has traded at an average premium of 25 percent over the Dow, reflecting India’s higher growth potential. However, in recent years, these valuations have moved in opposite directions. While the Sensex’s P/E has fallen from its post-pandemic high of 26 times in March 2022, the Dow’s P/E has risen sharply from a low of 15.6 times in September 2022.

According to a report by Business Standard, analysts attribute this trend to faster earnings growth in the US compared to India in recent quarters.

In the October-December 2024 quarter, corporate earnings in the US grew by 16 percent, whereas in India, earnings grew only 6 percent.

For the full 2025 calendar year, US earnings are expected to continue outperforming India’s, with the latter projected to grow at 11% in FY26.

Dhananjay Sinha, co-head of research and equity strategy at Systematix Institutional Equities, told Business Standard that slower earnings growth in India has led to foreign investors reducing their capital allocation to Indian stocks and shifting to markets like the US, China, and Western Europe.

Foreign portfolio investors (FPIs) have withdrawn nearly Rs 2.5 trillion from Indian equities since September 2023, causing the Sensex to fall 12 percent during this period. In contrast, the Dow has remained largely stable.

In the past year, earnings of top 30 US companies (Dow constituents) grew 8.9 percent, compared to 10 percent growth in Sensex companies. However, due to the rupee’s depreciation, the growth of Indian firms translates to just 5.6 percent in US dollar terms, making them less attractive to global investors.