India Faces High-Valuation, Low-Growth Challenge Among Emerging Markets

Indian equities currently occupy the least favourable position among major emerging markets on the growth-versus-valuation matrix, according to a report by Ambit Capital, which said the country’s expensive valuations and weak earnings outlook have hurt its appeal to global investors.

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The brokerage said India has lagged its emerging market peers over the last year, with underperformance reaching 37%, marking the weakest relative showing in more than two decades. Ambit noted that the trend predates the recent geopolitical tensions in West Asia and reflects a broader deterioration in India’s risk-reward profile.

Earnings Revisions Remain Weak

According to the report, India’s CY27 earnings-per-share estimates in dollar terms have been revised down by 15% over the past 12 months, making it the weakest performer among emerging markets. CY26 earnings estimates have also seen a 14% downward revision, compared with a 2% increase for the FTSE Emerging Markets Index.

Ambit said South Korea has recorded the strongest upgrade cycle, with CY26 earnings revisions of 153%, while South Korea, Taiwan and South Africa have also witnessed stronger CY27 estimate revisions.
The brokerage added that India trades at nearly 20 times trailing twelve-month earnings, a valuation level that does not adequately compensate investors for weaker earnings growth.

Foreign Outflows Continue

The report said foreign institutional investors have withdrawn nearly $49 billion from Indian equities since December 2024. According to Ambit, the outflow trend had already begun before the conflict in West Asia and has intensified in recent months.

India had underperformed the FTSE Emerging Markets Index by 23% in dollar terms during the 12 months preceding the conflict, indicating that the weakness was structural rather than event-driven.

Shift Towards AI-Linked Markets

Ambit highlighted that global capital has increasingly moved towards markets benefiting from the artificial intelligence investment cycle. Since tensions escalated in West Asia, South Korea and Taiwan have generated returns of 36% and 30%, respectively, while Indian equities have delivered negative returns of 8%.
The report attributed the divergence to stronger earnings prospects in technology-driven economies and the absence of near-term earnings catalysts in India.