UBS says India's 60% valuation premium to EM peers not justified

Business Standard

27-05-2025

Indian equities command a 60 per cent premium to emerging market peers, which is not justified given the "ordinary" earnings growth, said Sunil Thirumalai, head of emerging market and India equity strategy at UBS, during a media briefing on Tuesday.
"Historically, India has commanded a 25 per cent premium to other emerging markets. It peaked at about 90 per cent in September last year and is now down to 60 per cent. This is still a significantly higher premium compared to history," said Thirumalai.
He added that the earnings and other fundamentals of Indian firms do not justify such premium expansion.
"One of the biggest reasons behind this premium expansion is domestic flows. The retail flows in India have been so strong that they have supported markets despite the ordinary numbers reported by companies," said Thirumalai.
He said the revival in foreign portfolio investor (FPI) flows will depend on India's fundamentals.
UBS recently upgraded its stance on the Indian markets to "neutral" and has set a year-end Nifty target of 26,000.
"We upgraded India because it is a very defensive and domestic profile, which is important in this market. But valuations are still pretty expensive. That's why it's hard for us to make it overweight now," Thirumalai said.
He added that China remains one of UBS's most preferred markets.
"The companies have been giving you decent earnings growth, even in the last three months, all through intense tariff news flow. China has seen some earnings upgrades, whereas most of EM has seen downgrades, and valuations are still cheap," Thirumalai said.
Apart from China, UBS prefers Indonesia, Thailand, Malaysia and the Philippines in the ASEAN region.