Indian markets lead in valuation premium but not in earnings growth

South Korea and South Africa are expected to be the top markets in earnings growth for the next two financial years

Indian markets are the most expensive vis-à-vis their historical averages but their earnings growth is no longer the fastest.

According to an analysis by CLSA, India price-to-earnings (P/E) multiple is nearly 30 per cent higher than its historical average, while the two-year compound annual growth rate (CAGR) earnings growth (FY 24-26) estimates at 14 per cent. The top markets in terms of earnings growth expectations for the next two financial years are South Korea and South Africa. Despite leading the charts in terms of earnings growth, both countries are currently trading at a discount to their long-term P/E multiples.

Taiwan and Thailand are other markets expected to post higher earnings growth than India and yet command a lower premium relative to their historical averages. “Consensus forecasts put Nifty EPS growth at 14.9 per cent year-on-year (YoY) in FY25 and 12.3 per cent YoY in FY26, or a 13.6 per cent two-year earnings CAGR. While this can be said to be a steady and encouraging pace of growth, the Nifty is no longer the earnings growth leader among the world’s 19 biggest market indices,” said CLSA in a note. It adds stretched valuations could weigh on the performance of Indian markets this year.

The long and short of it

How valuations and growth growth prospects compare for key global markets

                              Valuation premium (%)*

Earnings growth (%)**

      Valuation discount (%)*

Earnings growth (%)**

India 27 14     Hong Kong -31 9 USA 24 12     Philippines -27 9 Taiwan 17 18     China -26 11 Thailand 4 14     Brazil -19 10 South Korea -1 36     Singapore -19 2 South Africa -1.7 19     Malaysia -14 9 France -4 4     Mexico -12 10 Germany -6 9     UK -12 4

Source: CLSA

Note: *Premium or discount to long-term average P/E; **Two-year CAGR growth (FY24-26)