India’s stock markets are expected to power on if Narendra Modi wins a third electoral victory this year, even as investors grow fearful that the index gains are built on stretched valuations. The country’s enviable economic performance, which has underpinned strong corporate earnings, and political stability under the prime minister are fuelling bullish sentiment among investors, with the IMF forecasting India will grow at 6.5 per cent this year and next.
“While a third term for the current government is already priced into expectations, after a formal result we expect to see incremental foreign institutional investor inflows,” he said. But for all the excitement over India’s long-term economic performance, investors are growing nervous about whether the stock market rally is sustainable. The MSCI India is trading at a forward price-to-earnings multiple for 2024 of 23 times, compared with 12.5 times for the broader emerging market index.