Indian-American academic and valuation expert Aswath Damodaran has raised concerns over the valuation levels of India’s financial and real estate markets, highlighting structural factors that have contributed to overvaluation. Speaking to NDTV Profit, Damodaran, a Professor at NYU Stern School of Business, stated that Indian stock markets are overvalued largely because investors in India have limited alternatives to deploy their wealth. He emphasized that India’s real estate market, traditionally seen as a cultural and financial safe haven, is now “even more overvalued” than equities.
Mr. Damodaran explained that he computed price-to-earnings (P/E) ratios for global markets and concluded that India had the highest P/E ratio among all countries. He observed that the overvaluation in Indian equities is partially driven by the lack of other investment options for domestic investors. “The country is getting wealthier. The wealth has no place to go but into Indian stocks. What exactly are you going to do? Will you buy Indian real estate, which is even more overvalued? So there is no easy place for them to put their money,” he told the news channel.
The expert’s warning comes amid rising valuations in the real estate sector and growing participation from both domestic and international investors. According to ANAROCK’s Consumer Sentiment Survey for the first half of 2025, more than 81 percent of property seekers across India are concerned about soaring home prices, with average residential property values increasing over 50 percent in just two years. The survey also highlighted a significant gap in affordable housing, with 62 percent of potential buyers dissatisfied with current options and 92 percent unhappy with project locations.
India’s residential real estate market has seen a steady price climb in recent years. According to industry data, average residential prices increased 6.5% in 2025 and are projected to rise another 7.5% in 2026. The fastest-growing segment has been luxury housing, particularly in the ₹1–3 crore range, which now accounts for nearly half of all sales in metro cities.
Yet, the income return from property remains among the lowest globally. Rental yields in cities such as Mumbai, Delhi, and Bengaluru hover between 2% and 3%, far below the 6%–8% commonly seen in developed economies. Mr. Damodaran has repeatedly argued that this mismatch signals a market driven less by utility and more by speculative behavior, where prices are sustained by cultural preferences and investor inertia rather than fundamentals.
Affordability remains another critical challenge. In Mumbai, households spend nearly 48% of their income on housing costs, a level considered unsustainable by global standards. Similar stress points exist in Delhi NCR, Pune, and Bengaluru.
The affordability gap has widened despite regulatory interventions like the Real Estate (Regulation and Development) Act (RERA), which improved transparency and accountability. For the middle class, real estate continues to be both a cultural aspiration and a financial strain, with limited liquidity and rising borrowing costs adding to the burden.
While residential affordability falters, the commercial property segment is expanding rapidly. Office leasing touched a record 79 million sq. ft. in 2024, supported by demand from global capability centers, IT firms, and startups. Investments into Indian real estate touched $6.99 billion in FY2025, with increasing flows into emerging asset classes such as Real Estate Investment Trusts (REITs), warehousing, and data centers.
Despite these inflows, Damodaran argues that the underlying fundamentals still lag. Vacancy levels in some markets remain high, and rental escalations have not matched the capital inflows, creating a valuation gap that could pose long-term risks.
India’s preference for property ownership remains deeply ingrained. For generations, buying a home has been equated with financial security and upward mobility. This cultural bias has sustained demand even when returns have been weak. Damodaran notes that this inertia contributes to mispricing, as buyers continue to pour money into an asset class that does not deliver proportional cash flow.
He also highlights that regulatory enforcement remains patchy. While RERA has improved consumer protection, delays, litigation, and stalled projects persist in many regions. According to one estimate, over ₹10.8 lakh crore is locked up in incomplete projects across India.
Anuj Puri, Chairman of ANAROCK Group, noted that in 2026, average housing price growth is expected to be between 6 and 7 percent, while rents are likely to rise 7 to 10 percent, both exceeding general inflation rates. India’s most valuable real estate companies are now worth a combined Rs 16 lakh crore, according to the 2025 GROHE-HURUN India Real Estate 150 report, a valuation that surpasses the GDP of some nations, including Kuwait.
Mr. Damodaran further addressed why Indian markets remain overvalued despite these conditions. He pointed out that institutional investors’ fear of missing out on high returns in India has contributed to sustained market growth. “I think part of the reason the Indian market is overvalued is a lot of institutional investors fear that if you’re not in the Indian market, you’re going to get left behind,” he said. Combined with the limited alternative investment options, this factor has steadily pushed market valuations higher. According to Damodaran, there is no immediate catalyst that could trigger a sharp correction in the market.
Addressing foreign institutional investor (FII) activity, Damodaran said their movements largely follow returns. Short-term gains in the market attract quick inflows, but their presence is volatile and dependent on performance patterns. “You have two good weeks in the Indian market; they’ll be here really quickly,” he noted.
In addition to market valuations, Mr. Damodaran offered guidance for individual investors. He advised a long-term investment approach rather than attempting to time short-term market movements. Young investors should focus on building portfolios that preserve and grow wealth steadily, emphasizing the importance of stable income sources from regular employment as the foundation for investment. He recommended investing in appropriate index funds rather than speculative single-stock purchases, warning that chasing hype can result in catastrophic losses. “The more you trade, the worse your odds are of making good returns,” he added.
Mr. Damodaran also identified sectors with potential for future growth, specifically highlighting healthcare as an area with strong long-term prospects. He cautioned against high-risk investments, using the example of US President Donald Trump as a metaphor for unpredictable and volatile assets. In contrast, leaders such as Chinese President Xi Jinping and Russian President Vladimir Putin would represent comparatively lower volatility, while Prime Minister Narendra Modi’s policies reflect India’s growth trajectory.
The overarching theme of Damodaran’s analysis highlights the challenges facing Indian investors. With limited domestic investment options, high valuations in both equities and real estate, and rising prices that outpace affordability, prudent, long-term investment strategies become essential. His observations serve as a reminder for Indian investors to carefully consider market fundamentals, avoid overexposure to overvalued assets, and prioritize sustainable wealth growth.
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