China’s current equity market capitalisation is double that of India, at a time when it’s GDP is 5 times that of Indian GDP.

Between 2004 and 2021, China’s economy outgrew India’s GDP at a ferocious pace but has lost some relative momentum since. Over the past 3 years, the Indian economy and equity markets have outperformed China, the report said.

At this juncture, India’s frontline stock index, the Nifty 50 Index trades at 23x trailing earnings, while the Shanghai Composite trades at 11x trailing earnings.

Emerging markets vary widely in quality, with India considered high-quality and traditionally expensive, while China and South Korea are perceived as lower quality and cheaper.

India’s appeal stems from favourable demographics, economic reforms, and supply chain realignment. Despite its high price-to-book ratio (over 4x, akin to the US), its return on equity matches that of the US, justifying a premium valuation. If India were to cheapen significantly, it could offer an excellent entry point for long-term investors, the report said.

Similarly, the US market features quality companies with elevated valuations, contrasting with Japan’s historically opposite traits.

The global market is currently experiencing a phase of remarkable optimism, buoyed by robust corporate performance and substantial earnings growth. Notably, amidst this landscape, Brazil has emerged as a standout case. It not only exhibits significant earnings growth but this growth is accompanied by an equally impressive valuation trend, the report said.

India stands out for its impressive earnings growth, albeit accompanied by premium valuations. “Consequently, Indian equities no longer represent a bargain opportunity. Indian equities lack a margin of safety,” it added.