McCafferty said that at 22.5 times one-year forward earnings, Indian equity markets are expensive relative to peers such as China and Japan in Asia.
Indian equity markets are up over 12 per cent in 2021 so far and have more than doubled from their multi-year lows hit in March 2020. McCafferty said that earnings growth expectations in India are very high, but investors are willing to pay expensive valuations if they feel earnings growth will come through.
Indian equities are expected to report more than 25 per cent earnings growth in 2021-22 despite being affected by a devastating second wave of Covid-19 infections and slow rollout of vaccination in the country.
Economists across the board have cut down their GDP growth estimate for India for the current financial year. However, that has not translated into any meaningful downgrades to earnings expectations.
The March quarter earnings expectations of India Inc have, in fact, seen minor upgrades to consensus estimates.
“We always find that analysts in India are very optimistic and there is always disappointment,” McCafferty said.
The head of research also said that certain pockets of the Indian equity market such as
, other consumer companies and natural resource producers could offer investors protection against high inflation.
