Indian equities are currently trading at a considerable valuation premium when compared to their counterparts in Asia, excluding Japan. This assessment comes from DBS's latest CIO Insights for the fourth quarter of 2026, which highlights a stark contrast in earnings growth projections between India and the broader Asian region. Despite India's robust economic growth forecasts, the investment bank has opted to maintain a neutral stance on the market, citing the disconnect between elevated valuations and a comparatively modest earnings outlook.
Valuation Gap and Earnings Disparity
DBS estimates India's earnings-per-share (EPS) growth at 7.4% for 2026, expected to rise to 10.9% in 2027. In sharp contrast, EPS growth for Asia ex-Japan is projected at a significantly higher 76.3% in 2026 and 26.6% in 2027. This substantial difference in earnings trajectory underpins DBS's cautious view on India's current market pricing.
The valuation gap is equally pronounced across key metrics:
- Forward Price-to-Earnings (P/E) Ratio: India stands at 21.1 times, while Asia ex-Japan is at 11.7 times, and emerging markets generally at 11.4 times.
- Price-to-Book Ratio: India's ratio is 3.1 times, compared to 2.2 times for Asia ex-Japan.
Macroeconomic Context and DBS's Neutral Stance
While Indian equities carry a premium, the country's macroeconomic fundamentals remain strong. DBS forecasts India's GDP to expand by 7.8% in calendar year 2026, moderating to 6.8% in 2027. Inflation is projected at 4.5% in 2026 and 4.2% in 2027. The bank also anticipates India's policy rate to increase from 5.25% in Q3 2026 to 5.75% in Q4 2026, remaining at that level through Q3 2027.
Despite these positive economic indicators, DBS has not assigned an overweight position to India within its Asia ex-Japan portfolio. The bank maintains a neutral rating for India, alongside Korea, Indonesia, and Malaysia. Its preference lies with China, Taiwan, and Singapore, largely due to these regions' stronger exposure to the artificial intelligence (AI) investment cycle. Taiwan and Korea are seen as direct beneficiaries of AI hardware demand, while China is actively developing its domestic AI and semiconductor capabilities.
Investment Strategy and Future Outlook
DBS's broader equity strategy suggests a potential shift in market leadership, with sectors like energy, healthcare, and financials gaining momentum as technology consolidates. The bank notes a growing investor interest in companies that can effectively adopt AI technologies without incurring the massive capital expenditures associated with data center infrastructure.
For India, the key takeaway from the DBS analysis is not a weak economic outlook, but rather the crucial relationship between growth, earnings, and valuation. With Indian stocks trading at significantly higher multiples than Asia ex-Japan while projecting substantially lower earnings growth, valuation remains the primary determinant of DBS's continued neutral stance on the market.