Where does Nifty actually stand on valuations?
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Six years into a bull market, genuine value in high-quality Indian stocks has been hard to find. The West Asia war and the oil shock it triggered may have just handed long-term investors exactly that. Pankaj Murarka , Chief Investment Officer at Renaissance Investment Managers , is not sugarcoating the near-term pain. Earnings growth will likely stay in single digits for another year. Supply chains are under stress. Oil prices will probably settle well above pre-war levels even after the conflict ends. But strip away the short-term noise, he argues, and what remains is a market that has corrected to its long-term average valuation — with a domestic growth engine that most economies in the world simply do not have."After a long time — we are six years into this bull market — we are seeing value emerge in a lot of high-quality companies," Murarka told ET Now. "There is a lot of money to be made for those able to look beyond the next few quarters."Murarka's framework is straightforward. Nifty earnings for the current year are tracking around Rs 1,050 per share, placing the index at roughly 22-23 times trailing earnings. His worst-case scenario is5-6% earnings growth next year, with the market trading at 21 times one-year forward earnings. That multiple, he points out, is almost exactly in line with India's 15-16 year historical average.In other words, the market is not cheap on an absolute basis — but it is no longer expensive either. It is sitting at fair value, at the mean. And at the mean, any positive surprise becomes an upside catalyst.On the question of India's premium to other emerging markets, Murarka is unapologetic. India currently trades at roughly a 45% premium to the MSCI Emerging Markets index — historically that premium has ranged between 40% and 60%. Markets like South Korea and Taiwan have delivered strong returns over the past 18 months, but Murarka frames those as cyclical, driven by AI investment tailwinds in the US tech cycle. India, he argues, is the only secular long-term growth story outside the US in the emerging market universe, and that distinction justifies a structural premium.On crude, Murarka draws a clear line. If the new normalised oil price settles around $80-85 per barrel — implying roughly a $40 billion annual impact on India, or about 1% of GDP — he believes markets have already absorbed that. The equation changes materially if oil moves to $100 or $120, but at current levels, the base case is largely in the price.What is not fully resolved is the second-order impact. Companies that depend on crude derivatives and feedstocks will face margin compression over the next two quarters as they absorb higher input costs before passing them through to customers. That process takes time — at least a couple of quarters — and means the first half of next year could remain earnings-headwinded at the index level.With a fiscal stimulus expected around mid-year — a response Murarka likens in scale to the government's Covid-era intervention — he is doubling down on domestic economy plays. Consumption, autos, and financials have all been hit disproportionately hard in this correction and are the sectors he expects to recover sharply once sentiment stabilises.The more contrarian call is IT. The AI-driven selloff in Indian IT stocks that preceded the war was, in his assessment, overdone. Several large IT companies are now trading at dividend yields of 4-5%, turning long-term growth stocks into something that looks more like value stocks. Valuations in parts of the sector have retreated to levels last seen during the 2008 financial crisis — a data point Murarka flags as significant for anyone with a multi-year horizon.His core message to investors sits somewhere between caution and conviction: the near term will remain volatile until a resolution emerges, but the correction has done something that six years of a bull market could not — it has made quality stocks genuinely affordable again."India has the ability to deal with this," he said. "For longer-term investors, this is a great opportunity."