2023 has been a pivotal year for the Indian markets with strong growth across sectors. This has underpinned the strong domestic inflows into the Indian markets that has crossed INR 3L cr (USD 50bn) this year (This compares to the same number at INR 70,000 Cr last year which is ~1/5th of the 2023 number). The Foreign inflows into India has been relatively muted in comparison in 2023 and has been a lot more sporadic (the number being at USD 12bn in 2023).

There are two levers for equity markets’ performance – strong earnings growth backed by strong flows (liquidity). We are in one such phase today which has underpinned the returns of the markets this year. I had written about the structural importance of this in our article which can be read here (https://ituscapital.com/articles/fiis-and-flow-of-capital-how-important-will-this-continue-to-be/).

The third leg of any market is the valuation where there is a qualitative aspect to what one may consider cheap or expensive. However, history gives us a perspective on where we are vs mean. It is important to understand that traditional measures of quantifying valuation have meaning only when looked at in conjunction with future growth. In this call, we discuss how valuation should be measured as a function of growth of earnings to have a complete view on how expensive or cheap a market is.