ETMarkets Smart Talk | Don’t judge India by Nifty’s 21x PE; stock-level valuations still offer opportunities: Emkay Investment Managers: Kashyap Javeri

India may be trading at a valuation premium to most emerging markets, with the Nifty 100 currently valued at around 21 times earnings compared with 14-17 times for several other EMs. But headline price-to-earnings multiples alone may not tell the complete story.

Kashyap Javeri, Head of Research and Fund Manager at Emkay Investment Managers Limited, argues that comparing markets purely on index-level valuations can be misleading, particularly when indices across emerging markets have vastly different compositions and concentration levels. Instead, investors should focus on company-specific growth and valuations, where opportunities continue to remain attractive on a PEG basis.

In an interview with Kshitij Anand of ETMarkets, Javeri discusses why India’s markets should not be judged solely by the Nifty’s headline PE multiple, the strong and increasingly broad-based earnings growth in mid- and small-cap companies, the role of SIPs in driving domestic institutional flows, early signs of fatigue in FPI selling, and the key risks posed by rising crude oil prices and currency weakness. Edited Excerpts –

Q) Most experts say valuations and earnings offer a reasonable starting point. But India is still trading at a premium to most emerging markets. What exactly is “reasonable” here—and what would make you admit that Indian equities are still expensive?

A) Nifty 100 today trades at 21x PER vs many of the emerging markets trading between 14-17x PER. However, looking at the plain PER numbers how does one conclude that Indian markets are expensive or cheap vs most emerging markets? In some of the emerging markets, the indices are so skewed that one or two stocks 42% to 55% of index weight. How do you compare the PERs of two markets? What we as well as global investors don’t seem to appreciate SEBI’s regulatory oversight on such undue influence of 1-2 stocks on the markets. We believe that if one shifts focus from headline numbers on PER and earnings to more focussed stock specific approach, there are plenty of opportunities available in the market to deploy money. We don’t believe that Indian markets are expensive at stock specific level compared to growth that they offer. PEG at stock specific level remains very attractive.

Q) If earnings are genuinely improving, why haven’t valuations corrected more aggressively? Are investors already pricing in the recovery?

A) The valuations at the index level are also driven by overall composition. For example nearly 47% of Nifty 100’s weight is BFSI+IT+RIL. We haven’t seen a very rosy picture of earnings here and hence the valuations have neither corrected much nor improved. However, if you go one step below – Nifty Smallcap 250 and Nifty Midcap 150 indices’ earnings grew at healthy 20+% for FY26 as well as Q1FY27 and hence Nifty Midcap 150 Index again crossed its all time high yesterday and Nifty Smallcap 250 index is just 1% away from the same.

Q) Everyone is calling Q1 earnings encouraging. But how much of that growth is actually broad-based, and how much is being driven by a handful of sectors or companies?

A) The earnings today are more than democratised than ever before. For FY26 as well as Q1FY27, the earnings of Nifty Smallcap 250 and Nifty Midcap 150 indices’ earnings grew at healthy 20+%, in fact higher for Smallcap. If you look at most broker reports, upgrade to downgrade ratio is 1x+ after long time and has improved for straight two quarters. More than sectors have seen earnings growth higher than index of which they are part of.

Q) DIIs have been relentless buyers. But are domestic flows actually reflecting investor conviction, or are SIPs simply creating an automatic bid regardless of valuations?

A) One would be correct in saying that SIPs are currently driving DII flows completely. Adjusted for SIP flows, the mutual funds have seen net outflows in 3 out of last 5 years. However, it is also true that Indian retail investors have raised SIP investment from $17bn in FY22 to nearly $40bn in FY26 shows their conviction. Let’s not make a mistake of assuming that only lumpsum flows in the market are smart money.

Q) We are seeing early signs of FII buying. But, can we call this as a turnaround after just a couple of months of modest flows?

A) Two things worth noting here – while FPI flows have been modest, they were net buyers in 26 out of 40 trading days in Q2FY27. That itself shows the incessant selling has started witnessing fatigue. Secondly, FPIs are not the only barometer global investor’s sentiment. If you look at FY26, gross inward FDI towards India stood at $95bn (of which $62bn was fresh money), the repatriation by private equity players thawed. For Q1FY27, we have already seen $31bn flowing in.

Q) If US bond yields remain elevated, crude moves higher and the rupee weakens simultaneously, does the current bullish thesis break?

A) Crude oil continues to threaten not only Indian markets but world markets too. From India’s standpoint its very important given that our import bill on petroleum stands at $180bn (or nearly 5% of our GDP). We have seen in past that whenever our FX cover falls below 7.2-7.5 months of our import bill plus short-term FX debt repayments, the currency has seen sharp depreciation like it happened in last 6-7 months. Lets hope that FCNR deposits and FDI money helps us improve the same.

Q) Large-, mid- and small-caps have all performed well. But isn’t that exactly what makes you nervous? Where are valuations most disconnected from fundamentals?

A) We believe that the valuations mismatched cannot be looked at sectoral level. Barring IT, almost every industry in India is witnessing tailwinds and within those industries, valuations of some stocks will overshoot the earnings expectations and in some cases they may undershoot due to some exogenous factors. Be mindful of such scenarios but stay invested!

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)