Indian markets more expensive compared to global peers, finds Economic Survey 2023

The Economic Survey noted that insurance penetration in India increased steadily from 2.7 per cent around 2000 to 4.2 per cent in 2020 and 2021.

The Indian markets are expensive compared to its peers across the world, said the Economic Survey 2022-23 tabled in Parliament on January 31.

“Nifty 50, with its valuation at 21.8 times the earnings of the constituent stocks (P/E ratio) on trailing basis at the end of December 2022, is expensive compared to global markets,” said the annual publication.

The Survey compared Nifty valuation to many MSCI indices, including MSCI World Index (PE: 17.1 times), MSCI Emerging Markets Index (PE: 12.2 times) and MSCI BIC Index (PE: 13.9 times).

The MSCI World Index captures largecap and midcap representations across 23 developed markets (DM), while the MSCI Emerging Markets Index captures largecap and midcap representation across 24 emerging markets (EM). MSCI BIC Index is a free float-adjusted market capitalisation weighted index that is designed to measure the equity market performance across the three emerging market indices of Brazil, India and China.

The Economic Survey added that the valuation is still lower as compared to its own last five-year average. The five-year average PE of Nifty stands at 27.4 times.

Resilient market

The Economic Survey highlighted that during April-December 2022, the Indian stock market saw a resilient performance, with the bluechip index Nifty 50 registering a return of 3.7 percent. This was despite a decline in the global stock markets because of geopolitical uncertainty.

The US dollar-adjusted return on Nifty 50 also stood at a negative-4.7 percent, adjusting for the depreciation of the Indian Rupee against the US Dollar, it said. In comparison, the S&P 500 Average Index declined by 15.3 percent, while Nasdaq Composite – heavily weighted (49 per cent) towards technology sector companies - declined sharply by 26.4 percent.

During the period, the Survey highlighted the performance of the market was better than many of other emerging and developed markets in their local currencies. This included China, Brazil, South Korea, France, Germany, Hong Kong, Japan and the UK.

To be fair, though it is not captured in the Economic Survey, Indian markets have seen a downturn in January so far. Many of the other markets mentioned above have outperformed the Indian markets as expensive relative valuation has become a concern.

The Survey said strong performance of the Indian market was irrespective of heavy outflow of foreign capital from equities. Volatility, as measured by the India VIX index, also declined during the period.

“Both developments underscore India’s strong macroeconomic fundamentals and relatively buoyant demand outlook,” said the Survey.