Over half of India's top Nifty50 stocks are now trading at lower forward P/E multiples than in 2023, indicating a significant valuation correction. According to The Economic Times, the benchmark Nifty Index has slid 10% from its 52-week high as war in West Asia disrupts global supply chains and drives crude prices up, exposing corporate earnings to localized pressures. While headline indices mask the underlying damage, about 54% of Nifty stocks are now trading at cheaper 12-month forward price-to-earnings (P/E) multiples than they were in 2023, according to estimates. However, market experts warn that despite recent corrections, Indian stocks remain overvalued in several sectors, with some trading at PEs of 70-80 that Ajay Srivastava from Dimensions Corporate Finance Services considers excessive.
Among technology heavyweights, Tata Consultancy Services (TCS) has seen its forward P/E slashed nearly in half to 14x from 27.5x. Infosys has dropped to 15.4x from 25.2x, while Wipro has fallen to 14.4x from 20.3x. As reported by The Economic Times, this dramatic compression in stock multiples suggests the extreme market froth has been aggressively wrung out, with the primary catalyst being a stark slowdown in aggregate earnings velocity. Reliance Industries has also plunged to a forward P/E of 19.6x from 31.4x, while Adani Enterprises has plummeted to 70.3x from 112.1x. However, Srivastava notes that even global technology leaders trade at lower valuations, making India's premium pricing concerning.
According to HDFC Securities, the extraordinary corporate earnings growth CAGR of 18% over FY19–FY24 will normalize to approximately 9.5% over the FY24–FY27E period. Prabhudas Lilladher's Amnish Aggarwal notes that the Nifty free float EPS grew by just 1.6% in FY26, with current valuations of 16.5x FY27 making it expensive in comparison to many developed and emerging markets. The Nifty EPS has seen a marginal downward revision of -0.9% and -0.8% for FY27 and FY28 respectively, signaling a 15.9% EPS CAGR over FY26–FY28 with FY27/28 EPS at ₹1,344 and ₹1,538 respectively.
As reported by The Economic Times, Nippon India Mutual Fund's Sailesh Raj Bhan believes domestic equities will stage a recovery before foreign capital returns, stating that markets will rise before FIIs come back. Bhan emphasizes that "don't base the market solely on whether FIIs come back. They come when their cycle turns. FII selling has been going on for years and valuations haven't collapsed — that tells you something." Prabhudas Lilladher has adjusted its 12-month base-case Nifty target to 26,449 (down from 27,080 earlier), valuing the index at a 10% discount to its 15-year average P/E. However, Srivastava from Dimensions Corporate Finance Services cautions against blanket investment approaches, stating "India is a treacherous market. It's not a clear-cut market where you buy, sleep over it and get good returns over five years." He recommends selective investing in sectors like automobiles and contract drug manufacturing while maintaining a neutral stance on India as an investment destination overall.
