Aswath Damodaran says India’s market is most expensive: ‘Can’t justify paying 31x earnings’ – CNBC TV18

India has become the most expensive market in the world, and no amount of optimism about the country’s growth story can justify paying sky-high multiples for its companies, according to renowned valuation expert Aswath Damodaran.

In his recent blog post, Damodaran argues that India’s pricing metrics are unsustainable and put investors at risk. “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 wrote.

India’s market is attracting considerable attention due to its economic growth potential, but Damodaran cautions that investors should be wary. While India is often touted as a high-growth economy, its current valuations are far above those of most other markets globally. When comparing India to other regions, Damodaran notes that some of the cheapest markets, such as Latin America and Eastern Europe, come with their own set of risks, including political instability and low growth. In contrast, Japan, which is often seen as a low-growth market, faces additional challenges due to its aging population.

This complex mix of high valuations in India, coupled with the risks associated with other emerging markets, underscores the importance of assessing a country’s market conditions carefully before making investment decisions.

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Damodaran highlights that while India’s price-to-earnings (P/E) ratios are high, there are other regions where investors are paying lower multiples.

“Many of the markets are in the world that trade at the lowest multiples of trailing earnings are in Africa. With Latin America, it is a split decisions, where you have two countries (Colombia and Brazil) on the lowest PE list and one (Argentina) on the highest PE list. In some of the countries, there is a divergence between the aggregated version and the trailing PE, with the aggregated PE higher (lower) than the median value, reflecting larger companies that trade at lower (higher) PE ratios than the rest of the market.”

The caution about expensive valuations extends beyond just India. Damodaran notes that some markets, particularly in the Middle East, may appear expensive due to quirks in market composition, such as a higher presence of financial service firms, which often report no revenues. Meanwhile, some regions, such as Japan and South Korea, appear undervalued in terms of enterprise value-to-sales metrics, even though they are not immune to broader economic challenges.