Nifty50 valuation slips below five-year average on continued FPI selling

The valuation of the Nifty50 index has dropped below its five-year average as the foreign portfolio investors (FPI) continue their selling spree in the Indian equity market. The index is on track for its ninth consecutive day of losses, reflecting broader concerns over global economic uncertainties and a slowing domestic economy that have been weighing on investor sentiment. Over this period, the benchmark has fallen by 4%.

The benchmark Nifty50 index has been hovering around 22,814 in Monday’s trade, with a price-to-earnings (P/E) multiple of 18.9 times one-year forward earnings. In comparison, the five-year average P/E for the index stands at 19.4x, according to Bloomberg data.

The index has faced significant pressure, particularly in dollar terms, as foreign portfolio investors (FPIs) continue to offload Indian shares. The Nifty50 has lost 5% so far this year, making it one of the worst performers among emerging market indices. In contrast, South Korea’s KOSPI and Hang Seng have gained around 12% during the same period.

Since October 2024, FPIs have been offloading Indian equities, citing concerns over high valuations and slowing economic growth. The rising US bond yields and a stronger US dollar have further intensified these outflows. On Friday (February 14), FPIs sold another $495 million worth of Indian shares, bringing the total outflows to $11.4 billion in 2025. Since the end of September 2024, FPIs have net sold over $23 billion worth of Indian stocks.With the Street narrowing down its earnings expectations for Indian companies, valuations may face further downward pressure. Victor Shvets, Global Strategist at Macquarie, observed in an interview with CNBC-TV18 that India’s earnings growth is now expected to be around 11-13%, compared to the earlier expectation of 16% growth. Shvets also stressed the importance of improving capital efficiency for India to sustain 8% GDP growth.

Also read: FPI selling is getting worse, the dollars may not return in a hurry: BofA Sec

Despite the current sell-off, India continues to command a premium valuation compared to other emerging markets. For instance, South Korea’s KOSPI trades at 9.1 times its one-year forward earnings, the Jakarta Composite is at 11.1 times, and Taiwan’s TAIEX trades at 16 times. Meanwhile, the Chinese Shanghai Composite is valued at 12.1 times.