The eagle in the stock market: Swooping where valuations open a gap

Down 10% in USD terms, Indian equities still give hawk-eyed investors a clear vantage through Nifty's pre-pandemic valuations

Benchmark indices sit roughly 2 per cent below the record highs reached in September 2024, yet market valuations have become more attractive compared with a year ago. 

Foreign brokerage Nomura points to several indicators suggesting Indian equities are in a stronger position than before. The Nifty 50 index’s premium to the FTSE Emerging Index, for instance, stands at 14 per cent — the lowest in four years and in line with pre-pandemic norms. 

In US dollar terms, Indian equities have fallen 10 per cent from their peak, while emerging-market peers such as South Africa, China, and South Korea have gained over 20 per cent, and the S&P 500 has climbed 16 per cent over the same period. 

Currently, the Nifty 50 trades at a 7 per cent discount to the S&P 500, below pre-pandemic levels. Its earnings yield relative to government bond yields has returned to the long-term average, suggesting equities may offer better value than bonds. The Nifty 50’s beta against the S&P 500 has risen to 14 per cent, indicating a slight increase in correlation after two years of relative decoupling between Indian and US markets. 

Nomura observes that strong domestic inflows and low equity risk premiums support Indian valuations. However, these factors alone may not be sufficient to trigger meaningful foreign fund flows.