Indian equity valuations not overstretched, says BlackRock Investment Institute
A large and expanding working-age population, unlike many major economies, bode well for sustained gains in productivity and consumption
BlackRock Investment Institute believes valuations of equity markets are not stretched given the growth prospects and is in line with the historical average.
Though the near-term equity valuations have eased this year, the MSCI India index trades at a forward earnings multiple of about 22.5 — slightly above its 10-year average and nearly double that of broader emerging markets, it said.
Positive factors
India’s strong growth outlook should support long-term earnings and justify this premium.
“We prefer the equity risk premium as a valuation gauge as it incorporates growth and interest rate assumptions. Our estimate of India’s ERP is about 4.9 per cent — in line with its historical mean, suggesting valuations are not as stretched as multiples imply,” it said.
In fixed income, BlackRock Investment Institute maintains a neutral stance on local currency bonds but sees scope to add selectively where real yields are compelling.
Vivek Paul, Head of Portfolio Research, BlackRock Investment Institute, said India offers one of the most compelling opportunities across emerging markets for investors looking to tap into mega forces.
A large and expanding working-age population, unlike many major economies, bode well for sustained gains in productivity and consumption, he said.
India’s digital initiatives such as its unique identification system Aadhaar, scalable payments systems and the open network for digital commerce are widening access, revolutionising transactions and enabling new business models.
However, execution risks around harnessing these innovations remain, said the report.
On the physical side, capital is flowing into renewable energy, logistics corridors and digital highways — building the foundations for sustained expansion, it said.
Infrastructure – at the intersection of several mega forces – is a key focus in 2025 and beyond. Historically, large-scale initiatives, particularly infrastructure and green projects, have relied heavily on domestic public sector funding, leading to higher borrowing costs.
“We see private capital playing a larger role than before, opening new investment opportunities,” it said.
“We keep a neutral stance on Indian equities in the short term but advocate for above benchmark allocations to Indian equities within strategic portfolios with investment horizons of five years as its economic transformation unfolds,” said the report.
“India equities aren’t immune to global risk-off episodes, yet over the long term, we see compelling overlaps between India’s development priorities and our global investment themes,” it said.
Published on July 3, 2025
