India stocks look expensive versus Asia as earnings growth lags: DBS

Indian equities are trading at a sizeable valuation premium to Asia ex-Japan even as the region is expected to deliver significantly faster earnings growth, according to DBS’ CIO Insights 4Q26. The investment bank has maintained a neutral stance on India, highlighting the gap between India's elevated valuations and its comparatively modest earnings-growth outlook.

DBS estimates India’s 2026 earnings-per-share (EPS) growth at 7.4%, rising to 10.9% in 2027. By comparison, EPS growth for Asia ex-Japan is projected at 76.3% in 2026 and 26.6% in 2027.

The valuation difference is equally pronounced. India’s forward price-to-earnings (P/E) ratio stands at 21.1 times, compared with 11.7 times for Asia ex-Japan and 11.4 times for emerging markets. India’s price-to-book ratio is 3.1 times, against 2.2 times for Asia ex-Japan.

Strong growth, but high valuations

The premium on Indian equities comes against a backdrop of strong economic growth. DBS forecasts India’s GDP to expand 7.8% in calendar 2026, before slowing to 6.8% in 2027. On a financial-year basis, GDP growth is projected at 7.3% in FY26 and 6.8% in FY27.

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Inflation is forecast at 4.5% in 2026 and 4.2% in 2027. DBS expects India’s policy rate to rise from 5.25% in the third quarter of 2026 to 5.75% in the fourth quarter and remain there through the third quarter of 2027.

The bank also sees India's 10-year government bond yield rising from 7% in 3Q26 to 7.10% in 4Q26 and 7.15% from 1Q27.

Source: DBS CIO Insights 4Q26

DBS remains neutral on India

Despite the strong macroeconomic outlook, DBS has not assigned an overweight position to India within Asia ex-Japan. It remains neutral on India, along with Korea, Indonesia and Malaysia, while favouring China, Taiwan and Singapore.

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The bank's preference for parts of Asia ex-Japan is linked to the region’s exposure to the artificial intelligence investment cycle. Taiwan and Korea are positioned as key beneficiaries of AI hardware demand, while China is developing its domestic AI and semiconductor ecosystem.

DBS' broader equity strategy also points to a shift in market leadership. Energy, healthcare and financials are gaining momentum as technology consolidates, while investors increasingly look for AI adopters that can benefit from the technology without undertaking the massive capital expenditure associated with data centres and infrastructure.

For India, the takeaway from the DBS data is therefore less about weak economic growth and more about the relationship between growth, earnings and valuation. With India trading at a much higher multiple than Asia ex-Japan while its projected earnings growth is substantially lower, valuation remains a key consideration in the bank’s neutral stance.

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