Marc Faber, a renowned Zurich-born global investor and author of The Gloom, Boom & Doom report, believes the domestic stock market has potential to correct 20 per cent from here, saying India has initiated a bear market. In an interview to Business Standard, Faber said earnings may begin to disappoint and the Indian market is not cheap enough to initiate buying. This is even as Indian market valuations are cheaper than they were in 2024 and earnings estimates for select artificial intelligence (AI) and semiconductors companies globally are unrealistic.
Faber’s concerns over Indian stock valuations came as Barclays last week called India an ‘unusual’ case of being the most unloved market in investor portfolios despite being the world’s fastest-growing major economy.
Faber told Business Standard that markets nowadays are driven by global liquidity, which is still growing, but at a slower rate than it used to be. “Usually, in investment bubbles or manias, earnings are grossly overestimated. Sooner or later, earnings begin to disappoint and stocks adjust very sharply on the downside. Really cheap stocks are hard to find at the present time,” he said.
Data showed Nifty trades at 19-19.5 times forward earnings, a valuation not seen since Covid. The economy grew 7.7 per cent in the fiscal year ending in March, with the final quarter printing at 7.8 per cent – ahead of both the Reserve Bank’s and the market’s expectations.
Despite this, foreign investors have sold more Indian equity in the first five months of 2026 than across 2025. India’s weight in the MSCI Emerging Markets index collapsed from 20 per cent at its 2024 peak to under 12 per ecnt. It is now the single largest underweight in global emerging market portfolios.
“A disconnect of this magnitude between fundamentals and positioning does not come along often,” Barclays said.
Analysts are mixed over whether the risk-reward is positive for India.
While Faber sees 20 per cent potential downside for India, Ambit Capital too believes risk-reward proposition looks unattractive, with India’s EPS growth trailing EM peers while valuations stay expensive at 20 times trailing twelve month PE.
“FIIs have pulled out $49 billion since December 2024, and a ceasefire alone is unlikely to reverse flows unless growth accelerates or valuations correct,” Ambit Capital said.
Nuvama said India’s valuations at the headline level are still on the expensive side—market cap to GDP of 130 per cent against 10-year average of 100 per cent, median trailing PE of 30 times.
JM Financial said the current market multiples have moved higher from May-end levels, supported by improved risk sentiment following the easing of US-Iran tensions. Midcap and small-cap valuations have recovered but remain below FY26 averages, pointing to selective opportunity rather than a broad re-rating, it said.
Barclays sees the prevailing valuations as opportunity. Emkay Global said the recent post-war rally is running into rough weather, and equities may pause due to multiple headwinds.
It noted that US-Iran talks have gone off-track, with Brent back above $80 a barrel, and monsoons are delayed by three weeks.
“In the short term, we see markets consolidating at current levels, with some risk of a sell-off if oil crosses $85/bbl. However, we would view any weakness as an entry opportunity and remain constructive on the broader market,” Emkay said.
PL Capital said after two years of subdued performance, the FY27 outlook is cautiously optimistic, underpinned by an anticipated pickup in Nominal GDP growth and attractive valuations.
“Geopolitics, the global AI frenzy and monsoon deficiency remain the key risks. We are constructive on two sectors – Defence and BFSI,” it said.