Indian stocks are the cheapest they have been in six years. That is the headline finding of a fresh CLSA report, and it comes at a moment when the gap between India and Asia’s hottest markets has rarely looked wider. South Korea’s Kospi has outperformed the Sensex by more than 65 percentage points in 2026, while Taiwan’s TAIEX has beaten China’s H-Share index by roughly 60 points over the same period.
The report, CLSA’s Bits and Pieces note dated November 6, puts India and China among the worst-performing major equity markets this year, while Taiwan and South Korea ride the global AI boom. The question now: has the sell-off gone too far?
How wide is the gap?
The valuation reset is striking. Indian equities are trading near their lowest price-to-earnings multiples in six years after a prolonged correction and sustained foreign investor selling. The dollar-denominated MSCI India index trades at around 18.5 times its 12-month forward earnings, its lowest level since May 2020. It has fallen from 22.5 times at the start of the year, below its 10-year average of 19.7 times.
In dollar terms, the gap is even clearer. The Sensex and Nifty are down 18 to 19 per cent so far in 2026 in dollar terms, while MSCI India has fallen 15.4 per cent. Taiwan and Japan, by contrast, have gained 57 per cent and 17 per cent respectively this year. The broader MSCI Emerging Markets index trades at just 8.7 times forward earnings, so India still carries a valuation roughly double that of its emerging-market peers.
The Nifty fell 5.2 per cent in the July to September quarter as crude rebounded and bond yields rose.
Why India fell behind
The main reason is simple: India has almost no exposure to the semiconductor and AI hardware companies driving this year’s rally. South Korea and Taiwan cashed in on demand for memory chips and AI infrastructure. India, with barely a listed play on that theme, missed the flow.
Foreign selling made it worse. CLSA’s India sales commentary estimates that foreign investors have withdrawn roughly 50 billion dollars from Indian equities over the past two years. A weaker rupee, higher crude and rising US bond yields added to the pressure.
The bull case for a turnaround
CLSA suggests the widening gap may now be excessive, opening a window for global investors to shift profits from North Asian markets into India and China. A bullish scenario in the report places India’s forward valuation at approximately 17.6 times earnings, alongside potential large-cap earnings growth of around 11 per cent. If profits improve and valuations stabilise, investors may not need a sharp earnings recovery to earn positive returns.
Indian banks are flagged as a particular opportunity, with depressed valuations and improving credit growth prospects. CLSA’s 14-stock India Focus portfolio is led by banks, with consumption and real estate also featuring. Lower crude could further support the economy and corporate profits.
There is also a contrarian twist. The same concentration that powered Korea and Taiwan could become a risk if global investors start trimming exposure to AI-linked stocks, and India’s limited semiconductor exposure could then offer diversification without leaving Asian equities altogether.
Why a rebound is not guaranteed
Cheap, on its own, is not a buy signal, and CLSA’s own note is careful on this point. A sustained recovery would require earnings expectations to actually materialise and investor confidence to improve. Foreign investors have shown little hurry to return, and India still trades at roughly double the valuation of the broader emerging-markets index.
A recovery rests on three things: improving earnings, renewed foreign inflows, and rotation away from expensive AI-linked markets. Until they arrive together, a reversal is a thesis, not a trend.
What it means for investors
For mutual fund investors, the reset strengthens the case for staying the course with systematic investment plans rather than trying to time the bottom. Valuations are lower and earnings growth is expected to pick up. None of that guarantees a quick rebound, but it changes the maths for anyone investing over years rather than weeks.
The coming weeks will decide whether this six-year valuation low is a turning point. This article is for information only and is not investment advice.
FAQs
Why are Indian stocks at their cheapest in six years?
A prolonged correction, foreign selling of about $50 billion over two years, a weaker rupee and higher crude prices have compressed valuations. MSCI India now trades at around 18.5 times forward earnings, its lowest since May 2020.
How far has Korea’s Kospi beaten the Sensex in 2026?
South Korea’s Kospi has outperformed the Sensex by more than 65 percentage points in 2026, according to CLSA’s Bits and Pieces report dated November 6, 2026.
What does CLSA say could trigger a reversal?
Three things: improving earnings, renewed foreign inflows, and rotation away from expensive AI-linked markets towards India and China.
Which sectors does CLSA favour in India?
Banks lead its 14-stock India Focus portfolio, alongside consumption, real estate, Larsen and Toubro, Infosys and select auto and energy names.
Does cheap valuation alone mean Indian stocks will rise?
No. CLSA notes that cheaper valuations alone do not guarantee an immediate rebound. Earnings need to improve and foreign investor confidence needs to return first.
