The higher they rise, the harder they fall. The higher premium commanded by the Indian market compared to other emerging markets has come crashing down in a recent correction.
At the beginning of the year, the MSCI India Index traded at a premium of about 45% to the MSCI Emerging Markets Index, using the one-year forward price-earnings multiple.
It now trades at a 24% premium. Foreign portfolio investors (FPIs) have always been attracted to the relatively faster growth offered by the Indian economy.
However, that sentiment is coming undone in the recent covid-19 induced sell-off. The sharp fall in MSCI India valuations comes on the back of huge withdrawals of foreign funds from the Indian market.