India's sectoral valuations outstrip Asian counterparts, shows data

It is well-known that the Indian markets trade at a significant premium to their Asian peers. The Morgan Stanley Capital International (MSCI) India Index trades at 18.6x its estimated earnings for the year 2024 — nearly 80 per cent more than the 10.5x commanded by the MSCI Asia (excluding Japan) Index. However, if one examines the individual sectors, the valuation differential is more pronounced, except for a few sectors.

For instance, the price-to-earnings (P/E) for the industrial and consumer staples sectors has more than doubled that of other Asian markets.

“Attractive companies in sectors linked to domestic consumption or investments are trading at record-high valuations. Consumer staples, consumer discretionary, and select industrials fall in that bracket, according to most domestic institutions, although they are unable to ignore the superior quality of many companies in these sectors,” observes a note by BNP Paribas.

With the exception of health care, all domestic sectoral valuations are expensive on metrics such as P/E, price-to-book (P/B) ratio, and return on equity (RoE). “Most Indian sectors figure significantly above the trend line in an RoE-P/B scatter plot of all Asian market sectors. Indian financials and Indian health care — slightly less so — seem to be the only exceptions,” adds the note.