Indian equities have had a stellar run over the past two months, recently rising to a three-year high, but analysts warn that the market rally is ripe with risks.
“Investors ought to be cautious on India. The economy will continue to suffer from a poor growth-inflation mix, leading to a high cost of capital,” said Nicholas Ferres, investment director at Eastspring Investments.
“In this context, the valuation multiple for the market does not provide sufficient compensation for risk, in my view,” he added. The benchmark S&P BSE Sensex is trading at a price-to-earnings ratio of 16.8.
Indian shares have surged around 13 percent since the U.S. Federal Reserve’s decision to delay tapering its $85-billion-a-month asset-purchase program in late August, driven by robust inflows from foreign investors.
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