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India stock valuations split sharply across sectors and market caps
Nuvama Wealth Management links the valuation gaps to fears about AI impacts on IT, while citing RBI easing and GST cuts as boosts to goods consumption.
Indian equities are showing unusually wide valuation gaps across sectors, market segments, and company sizes, a pattern that brokerage firm Nuvama Wealth Management says has created sharply polarized conditions for investors.
In Nuvama’s view, some investors may be extending a cyclical earnings recovery into longer term structural gains, even as global macro conditions, weaker domestic income dynamics, and extreme valuation differences between India and other emerging markets are reviving memories of prior turning points in risk reward, including 2007, 2013, 2019, and 2024.
Nuvama said defensive stocks have become cheaper than cyclical stocks, similar to the setup before major market reversals, and that small and mid caps are trading at a valuation premium to large caps near levels seen in 2024, which historically has pointed to major turning points.
The brokerage also attributed part of the discounting to concerns that AI capex could hurt India’s IT sector, even as it argued positive earnings are being overlooked amid depreciation of the rupee, machinery exports, and metal prices, and noted that RBI regulatory easing and GST cuts have supported goods consumption.