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India’s equity market has long been a beacon for global investors, drawn by the country’s rapid economic growth and strong corporate performance. However, according to renowned finance professor Aswath Damodaran, India now holds the title of the most expensive equity market in the world. His analysis, based on key valuation metrics, suggests that Indian stocks are significantly overvalued, making it a risky bet for investors.
Overvaluation Of India’s Stock Market
Damodaran, a professor at New York University and an expert in corporate valuation, recently pointed out that Indian stocks are trading at an extraordinary premium compared to global averages. In his analysis, he highlights that India’s equity market is currently priced at 31 times earnings, 3 times revenue, and 20 times EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). These figures place India’s stock market valuation among the highest in the world, surpassing even the United States and China.
What Makes India So Expensive?
Several factors contribute to India’s soaring equity valuations. High-growth markets like India often attract a valuation premium due to expectations of rapid economic expansion. However, Damodaran cautions that such a premium should be backed by equally strong earnings growth to be sustainable. Without robust earnings to support these valuations, the current market prices may not be justified.
India’s stock market performance in 2025 has been lackluster, yet it remains the most expensive globally. In comparison, China’s Shanghai Composite Index has outperformed India’s benchmark Sensex this year, despite India’s reputation as one of the fastest-growing economies. This contradiction underscores Damodaran’s concerns that Indian stocks are trading at unsustainable levels.
A Word Of Caution For Investors
In his recent blog post, Damodaran emphasized that “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.” While India continues to present strong economic growth prospects, the high valuations pose a challenge for investors seeking reasonable returns.
Comparing India’s market to other regions, Damodaran noted that some of the cheapest markets, such as those in Latin America and Eastern Europe, come with political instability and low growth risks. Meanwhile, Japan, often considered a low-growth economy, struggles with an aging population. Yet, Indian stocks continue to command the highest premium, raising questions about their long-term sustainability.
As global investors weigh their options, Damodaran’s analysis serves as a crucial reminder that valuation matters. While India remains an exciting market, the risks associated with its high price-to-earnings ratio should not be overlooked.
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