Indian equities not overly expensive, reflect growth prospects

We see structural shifts in India align closely with 5 mega forces driving global economic transformation Ben Powell Chief APAC & ME strategist, Blackrock Investment Institute

- Dipti Sharma

Indian equities are "not overly expensive, contrary to market consensus relying on traditional valuation metrics", according to Ben Powell of BlackRock Investment Institute.

While India's large-cap stocks trade at 23 times their forward earnings, above historical averages, "we think this high P/E ratio reflects strong growth prospects", said Powell, chief Middle East, and APAC investment strategist at the research arm of the world's largest asset manager.

"...we don't see elevated P/E ratios as a reason to scale back equity exposure," he said. "When factoring in interest rates and corporate earnings growth expectations, valuations appear reasonable".

Multi-aligned and "connector" countries—like India—could gain from the rewiring of global supply chains, even with uncertainty around future US policies, he said. Powell likes consumption-related sectors, infrastructure and real estate, and select industrials benefiting from government incentives to boost manufacturing.

Edited excerpts:

Last year, high valuations had kept FIIs away from Indian equities, but we are now observing a resurgence in FII inflows. What are your thoughts on the outlook for Indian equities?

We keep a neutral stance on Indian equities in the short term but advocate above-benchmark allocations to Indian equities within strategic portfolios with investment horizons of five years or more.

India's robust growth outlook, underpinned by the economic transformation we expect to unfold in coming years, supports our view that long-term equity returns could be higher in India than in other regions.