Valuation guru Aswath Damodaran says India is most expensive market in the world, can’t justify paying 31x earnings

Indian stock market: "Valuation guru" Aswath Damodaran, professor of finance at New York University (NYU) said the Indian stock market is the most expensive equity market in the world and no amount of handwaving can justify its valuations.

In his latest blog, Damodaran, who is an expert on stock valuations said, "The most expensive market in the world is India, and no amount of handwaving about the India story can justify paying 31 times earnings, 3 times revenue and 20 times EBITDA, in the aggregate, for Indian companies."

Damodaran added that the US and China also fall into the expensive category, trading at much higher levels than the rest of the world on all three pricing metrics.

His comments come as Indian equity markets are experiencing a selloff amid weak earnings growth by Indian corporates. Despite a 10% decline from their all-time highs, Indian equities are still trading at a premium to the rest of the world.

Damodaran highlighted that many of the world's markets that trade at the lowest multiples of trailing earnings are in Africa. “With Latin America, it is a split decision, where you have two countries (Colombia and Brazil) on the lowest PE list and one (Argentina) on the highest PE list,” he added.

The best-performing index in 2024, at least for the subset of indices that I looked at, was the Merval (Argentine), up more than 170% in 2024, and European indices lagged the US in 2024, said Damodaran, adding that the Indian and Chinese markets cooled off in 2024, posting single-digit gains in price appreciation.

Risk factor

Damodraan cautioned that while emerging markets delivered higher returns than developed markets, the truth is that these higher returns often go hand-in-hand with higher risk.

“The logical step in looking across countries is measuring risk in countries, and bringing that risk into your analysis, by incorporating that risk by demanding higher expected returns in riskier countries,” he advised.

Outlook 2025

As 2025 starts with a bang, with tariff and trade wars looming, there is a sense that after four decades of seemingly unstoppable growth, globalization has crested, and nationalism is back in vogue, he noted.

"Trade wars (and tariffs) will make the world collectively less well off, but like all global shocks, they will create winners and losers, and the test for investors is getting on the right side of that divide," the NYU professor wrote in a post on social media platform X.

Disclaimer: The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.