Indian stocks' valuation premium approaches record against Chinese peers

By Abhishek Vishnoi

Indian stocks are trading near their most expensive levels against battered Chinese peers, underscoring a growing divergence in investor preference between the two emerging market leaders. 

The MSCI India Index trades at a 157 per cent premium over the China gauge on valuations based on forward earnings estimates, just 3 percentage points short of the record reached in October 2022, according to data compiled by Bloomberg. 

India — long dubbed the “next China” — has emerged as an investor favorite, aided by solid earnings and a booming consumer market. It’s ascent came on the back of a sluggish Chinese market, where problems ranging from rivalry with the US and deflationary pressures led to a third annual decline in the MSCI China gauge. The Indian measure has continued to advance following a fifth year of gains. 

India is now trading at 22 times forward earnings estimates, higher than a year ago, while the metric for China stands at 8.6 following a steady decline.  

The gap demonstrates how investors favor India, with its improving profit prospects, despite China’s extraordinarily cheap valuations. It also suggests that sentiment over China is almost as negative as in October 2022, which was just before to the country rolled back its strict Covid Zero policy.