Why Indian equities still aren't a bargain

Few cheap pickings The debate is whether India's growth trajectory justifies the premium investors continue to pay.

- Mayur Bhalerao

Since the market's lofty peaks last September, talk of "undervaluation" has grown louder on Dalal Street. The data tells another story. Despite occasional wobbles and sector rotations, valuations remain elevated, and far from bargain territory.

A Mint analysis of over 4,000 BSE-listed firms shows India's markets, even after recent corrections, look closer to premium than cheap. The debate is whether India's growth trajectory justifies the premium investors continue to pay.

To grasp this shift, look back to the pandemic lows. On 23 March 2020, when the Sensex hit its Covid trough, fear reigned. Nearly two-thirds of stocks traded below 10x earnings. Those bargains made up about 16% of the market's capitalization, while close to half of all equity wealth sat in stocks priced at 10-25x earnings.

Barely 5% of firms traded above 60x earnings, together making up just 9% of total market value. The rest clustered in the 40-60x range, representing about 13% of the market. For investors with conviction, bargains abounded—though fear kept many from acting.