Valuations of equities seem stretched, says RBI's report on economy

16th Nov,2021

Valuations of equities seem stretched, says RBI's report on economy



Most conventional yardsticks, such as price-to-earnings multiples and yield differentials with benchmark bonds, appear to overvalue Indian equities, but the trend among promoters to steadily increase ownership in listed companies reflects their confidence in their businesses, according to central bank economists in their latest report on the state of the economy.
The Reserve Bank of India (RBI) economists have stated that monetary and credit conditions are favourable for a long-term economic recovery. So far this year, India's equity indices have outperformed rivals, as the economy has recovered from the second Covid wave stronger - and faster - than expected. "The extraordinary gains have aroused worries about overstretched valuations, with a number of global financial service firms turning cautious on Indian shares," the RBI noted in its most recent monthly report.