India valuations ‘expensive again’: Jefferies

Tthe outlook for domestic and foreign flows remains a key positive with India’s position still neutral to underweight for many funds

A rebound in the indices from their March lows have made Indian valuations “expensive again,” while earnings growth expectations moderate, said global brokerage firm Jefferies. India valuations are now closer to the September peaks, with MSCI India’s price-to-earnings (PE) at 23 times.

Jefferies has trimmed the earnings estimates for FY26 for MSCI India by 1.1 per cent and the FY26 earnings expectation is now hovering around 11 per cent.

However, the outlook for domestic and foreign flows remains a key positive with India’s position still neutral to underweight for many funds. This is expected to help the potential equity supply. The potential trade deal between India and US, on the lines of the UK-India FTA, can be a near-term trigger, it said.

As part of changes to its model portfolio, it has trimmed its large overweight on financials by removing Shriram Finance. It has also removed Coal India, and added Bharat Electronics and Ambuja Cements to its portfolio.

Valuation worry

The MSCI India has risen over 14 percent from the ‘trade-war’ lows of early March25 driven by US-China trade deal relief and Indo-Pak conflict de-escalation. The valuation has increased to a PE of 23 times, which is “demanding especially in the context of FY25-FY27 EPS expectation of 11-12 per cent,” and this is accompanied by its usual downside risk, Jefferies said.

“The Indian markets had peaked in September24 at 24.1x PE and the subsequent decline had brought PEs near the long-term average. The recent rally, however, has taken MSCI India valuations to 22.9x PE,” Jefferies said. “The rally in India has been partly supported by a central bank easing cycle.”

The March quarter earnings ratios improved quarter on quarter but the upgrades/downgrades to FY26 earnings have worsened as the NIM compression for banks and weaker IT services outlook gets built in, it said.

Published on May 16, 2025