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The Nifty 50 index trades at 19 times one-year forward earnings, making India one of the most expensive markets in the world. This is about 20% higher than its long-term average. Nearly half of the Nifty 50 constituents currently trade at a premium to their historical averages. Among major global indices, the S&P 500 trades at a forward price-earnings (P/E) of 20.6, 29% higher than the long-term average. The Taiwanese benchmark index with a P/E of 17.7 is 27% more expensive than its historical average valuation.
The extent of stretched valuation can be gauged from the fact that the spread between the Nifty earnings yield - the inverse of P/E - and 10-year bond yield, has expanded to 180 basis points against the long-term average of 100 bps. Historically, the spread has been around 180-200 bps when the market peak.
With India's market cap at around $5 trillion, the country's share in the global market cap is at 4% compared with the historical average of 2.7%.
Market experts believe country's political stability premium may take a hit after a fractured mandate in the latest general elections. India trades at nearly a 60% premium to the emerging market counterparts compared with the long-term average valuation of 40%. Nifty 50 delivered 12% growth annually in the past decade while the MSCI EM index return was limited to 3% in the same period.
Investors are adopting a switch trade to protect their portfolios. They are pruning exposure in 'narrative' stocks like PSU, capital goods, realty and capital market proxies while shifting to beneficiaries of the rural consumption theme, such as consumer staples and two-wheeler stocks.
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(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price