India Market Valuation High But Justified: HSBC | FMCG Sector Revival Needs More Proof: Goldman Sachs

Table of Contents

HSBC: India is the Most Expensive Emerging Market

HSBC has reported that India is currently the most expensive emerging market. The Indian stock market is trading at a price-to-earnings (P/E) ratio of 20 times. This makes India nearly 60% more expensive compared to markets like China, Indonesia, and South Korea.Despite the high valuation, HSBC believes it is justified due to stronger fundamentals and long-term growth factors. Some of the key reasons are:

Higher Return on Equity (ROE): Indian companies in sectors like automobiles, consumer staples, insurance, hospitals, and banking are generating better returns when compared to their global peers.
Strong Banking Performance: Indian banks have an average Return on Assets (ROA) of 1.2%, while Chinese banks are at 0.7%.
Stable Economy: India has lower perceived risk due to solid institutions and fewer macroeconomic crises compared to other emerging markets.
Rising Domestic Demand: Household penetration of products like insurance, healthcare, automobiles, and consumer durables is still low. As per-capita income rises, these sectors are expected to see strong, long-term growth.

However, HSBC also warned about some risks:

Slower near-term growth could impact valuations.
Over time, sector ROEs might come under pressure.
Industries like automobiles may require higher reinvestment, reducing profits.
The rise of quick commerce (Zepto, Swiggy Instamart, Blinkit) could challenge traditional FMCG distribution channels.
India’s free float (stocks available for trading) is low at 44%, compared to 67% in peer countries. This makes stock prices more sensitive to domestic buying.

Goldman Sachs: FMCG Sector Shows Signs of Revival

Goldman Sachs believes India’s FMCG (Fast Moving Consumer Goods) sector may be seeing a revival after several weak years. However, analysts feel that it will take at least one or two more quarters of strong performance to convince investors that the growth is sustainable.

Goldman Sachs analyst Arnab Mitra highlighted several positive drivers:

Government fiscal measures and direct transfers to households.
Moderation in food inflation, helping consumer spending.
Income tax cuts supporting middle-class demand.
Expected GST cuts on some goods boosting affordability.

Recent data shows aggregate volume growth across categories in the last two quarters. Demand has been rising broadly across both urban and rural markets. For now, staple goods are seen as offering better risk-reward, while discretionary spending (like durables and lifestyle items) is expected to grow faster in the medium term.

Goldman Sachs also underlined the growing role of digital-first platforms. Apps like Zepto, Swiggy, and Zomato are becoming strong sales channels and are even outperforming traditional retail and offline distribution networks in many areas.