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analyst calls to buy india’s $5 trillion stock market are fading.

according to data compiled by the media, as of tuesday (september 24), the total number of stocks in india's nse nifty 200 index that were given a "buy" rating was 61, the lowest level in at least 10 years, compared with 114 in fiscal 2023.

the earnings outlook for companies listed in india, one of the world’s most expensive stock markets, is starting to dim, leaving analysts skeptical that some of the stocks that have powered a years-long rally in the country’s stock market have further to go.

stocks are too expensive

indian stocks have hit record highs in recent years as global investors bet on the country's rapid economic expansion. after the federal reserve announced a sharp interest rate cut last week, risk sentiment in global markets pushed the nifty index to a record high on tuesday.

behind the stock market's record highs, the nifty 200 index's valuation (price-to-earnings ratio) has reached 24 times its 12-month expected earnings, a significant increase from the average of 19 times over the past 10 years.

but corporate profits, which can drive changes in price-to-earnings ratios, are starting to slow. kotak institutional equities expects net earnings of india’s benchmark nifty 50 companies to grow 8.4% in the current fiscal year ending march 2025, compared with 20% last year.

"many stocks are now ridiculously expensive," said sahil kapoor, strategist at indian financial services company dsp mutual fund. he said analysts are pushing back some earnings estimates because sales growth is weak and profit margins have peaked.

as market watchers debate whether recent returns can be sustained, an investment shift appears to be quietly underway: some investors are moving into large-cap stocks with reasonable valuations, while others are shifting money into sectors such as financials, which have lagged the broader market.

more analysts are starting to revise their ratings on indian companies. data shows that more than two-thirds of the stocks in the nifty 200 index now show a "hold" rating. for example, this quarter, several stocks such as lic housing finance ltd., sun tv network ltd. and dr. lal pathlabs ltd. have been downgraded multiple times, and analysts' average rating on them has dropped to "hold." ten years ago, the ratio of "hold" and "buy" was almost equal. this shift reflects a more cautious stance.

despite concerns about stretched valuations, india remains a bright spot globally as only five of the 196 stocks reviewed have a “sell” rating, little changed from 2015.

“india is a growth market and analysts will try to give buy or hold ratings rather than sell,” said kapoor, strategist at dsp mutual fund.