The Sensex has traded sideways in the past year. This has allowed the earnings growth to catch up with valuations, said Wood. In this sense, India is not as expensive as it was, both in absolute terms and relative to the region. The one-year forward PE at 18x is only slightly above the 10-year average of 17.4x, while the Nifty PE premium to Asia ex-Japan at 42% is also near the 10-year average of 38%, he said.
With the structural story still intact, the Indian stock markets may continue to climb the proverbial wall of worry, according to Wood. Any change in the current consensus for the BJP's re-election next year or a further reduction in retail investor activity following a period of range-bound market activity are the key risks for the next 12 months.
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