MUMBAI: Chief Sebi Madhabi Puri Buch said on Tuesday that the rise price-to-earnings multiple in Indian markets reflected global investors' optimism and confidence, while arguing that appreciation was a manifestation of the dynamics of the economy.
The regulator chief's comments follow her observations in March that some market segments had “foam pockets”. Her statements about valuations and signs of manipulation in some segments last month led to a correction in small-cap stocks.

At the end of January, India overtook Hong Kong to emerge as the fourth largest stock market based on share value. There has been some commentary on the high valuations of Indian stocks. A high P/E ratio can signal that a stock's price is high relative to earnings and is overvalued. On the other hand, a low P/E may indicate that the stock price is low relative to earnings.
“Why are our markets commanding… this price-earnings multiple, which is higher not only than world index averages, but also when compared to several countries at 22.2? Yes, some people say we are an expensive market, but even so, why come the investment?” Buch said at the CII's 17th annual corporate governance summit. She added that this was a “reflection of the optimism, the confidence and the faith that the world has in India today that we are commanding the kind of multiples in our markets.”
The market regulator said direct and indirect tax collections and energy consumption data indicate the dynamics of the economy. GST collections – which started at an average of Rs 1 lakh crore per month – have risen to around Rs 1.7 lakh crore today, and the increase is eye-opening for global investors, she said. According to Buch, these growth numbers manifested themselves in the markets and resulted in a “hockey stick effect”.
“If you look at how the market capitalization has grown from Rs 74 lakh crore to the current GDP – the growth has been phenomenal in 10 years. India’s weight in the emerging markets index increased from 6.6 to 16.6,” she said.