If buying by FIIs continue, it could see the elevated valuations sustain in the near term, said
in its report.
From its June lows, the Nifty 50 is up about 21%, and FIIs have net bought Indian equities in four out of the five months since July. Between July and November, FIIs have poured in over $10 bln into the domestic market.
The significant run-up since June has led Nifty 50 valuation to expand again to 19.7 times its one-year forward earnings, which is 22% above its long-term average, BNP Paribas said, adding that most sectors, barring banks, are trading at higher valuations vs their long-term averages.
FIIs have been more positive on sectors linked to the domestic economy such as fast moving consumer goods, banks, financial services and insurance, and automobiles, compared with export-oriented sectors.
Despite the recent buying by FIIs, foreign holdings as a percentage of India’s market capitalisation remain near multi-year lows of 17.5% vs 21% in February 2021, the brokerage noted.
“GEM investors are still underweight on India as the recent buying has not kept pace with the rapid increase in India’s benchmark weight,” it said.
If the trend of FII buying sustains, it could support valuations, but BNP Paribas remains cautious on the absolute return over the next one year.
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