Why Indian markets are not looking overvalued

The Indian capital markets have surged 20 per cent gained since the beginning of 2017-from 26,595.5 points to 32, 074 currently. Last week, the benchmark index Sensex breached the 32,000 mark for the first time.

In the first two weeks of July, Sensex gained around 3 per cent. Both foreign portfolio investors and domestic institutions have been buying in 2017 with net investments of around 53,852 crore and 24,745 crore respectively between January and now.

With the Sensex soaring to its all-time high levels, it is also becoming increasingly expensive as measured by price-to earnings (PE) ratio and the Indian stock market is currently trading 1.2 times its five-year historical median.

According to Umesh Mehta, head of reasrch, SAMCO Securities, "We are in the new normal and old benchmarks will not hold true as markets will continue to rise.

This type of excessive valuations will occur and long-term investors should not worry." Not only domestically, India has now become the world's most expensive market (what it means for india ).

Not only domestically, India has now become the world's most expensive market. A closer look at P/E valuations globally reveals that Indian stock market is trading at premium compared to equity markets of some leading economies including United States.  

"The equity markets do have some correlations in the short-term but in the medium to long term there would hardly be any correlation as each market (globally) is different and has different underlining growth factor," adds Mehta.  

As on June 30, 2017

All the same, while it is difficult to predict that a major correction will happen, traders and investors need to be cautious while investing in the Indian stock markets currently.