India's double reset

Indian equities have repriced while the Australian dollar has strengthened against the rupee. For Australian investors, the combination changes the entry-point calculation. The more important question is where earnings expectations and valuations are now misaligned.

India's long-term economic growth story is well understood. What has changed is the price Australian investors pay to access it. Over the past year, Indian equity valuations have moderated while the Australian dollar has appreciated significantly against the rupee. 

Together, these adjustments have altered the starting conditions for Australian investors considering an allocation to India. However, a lower entry price does not necessarily imply uniformly attractive prospective returns. The more interesting question is how the repricing interacts with corporate earnings expectations and India's changing sources of growth.

Two adjustments, one investment decision

As of 30 September 2026, the MSCI India Index traded at approximately 18.6 times forward earnings, towards the lower end of its valuation range over the preceding six years.

The correction reflects several factors, including foreign investor outflows, moderating earnings growth and competition for global capital from other markets. India still commands a premium to many emerging markets. However, the reduction in its own valuation multiple is meaningful for investors previously reluctant to pay elevated prices for long-term growth.

For Australians, the currency adjustment adds another dimension. In October 2025, A$1 purchased approximately ₹57. By October 2026, it purchased around ₹66–67, representing roughly 16% more rupees per Australian dollar.

The combination means Australian investors can now access Indian equities at lower valuation multiples and a more favourable exchange rate than a year earlier.

There is an important qualification: currency depreciation can reflect underlying economic pressures, and further rupee weakness would detract from unhedged returns. The exchange-rate adjustment improves the entry point but does not, by itself, establish that the currency is undervalued.

Where earnings growth may be underestimated

India's equity market has historically rewarded businesses benefiting from formalisation, financial deepening and rising household consumption. Those trends remain relevant, but their investment implications are evolving.

For example, rising incomes are increasingly supporting expenditure on services and experiences rather than solely consumer goods. InterGlobe Aviation, operator of IndiGo, illustrates the expansion of domestic travel, although airline economics remain sensitive to capacity, fuel costs and competition.

In financial services, the opportunity extends beyond the major private banks that dominated previous market cycles. Specialist lenders such as Shriram Finance provide exposure to credit demand in segments underserved by traditional banking channels, where funding costs and credit quality are critical to returns.

Similarly, Thyrocare Technologies illustrates how rising healthcare utilisation can benefit scalable diagnostic businesses, rather than only pharmaceutical manufacturers and hospital operators.

The significance of these examples is not that their industries will necessarily outperform. It is that India's earnings opportunities are broadening, while market expectations and valuations may not adjust uniformly.

The distinction between growth and returns

India's economic expansion does not translate mechanically into equity market performance. Shareholder returns depend on the interaction between earnings growth, valuation changes and capital allocation. This is particularly relevant in a market where established franchises have historically traded at substantial premiums.

A company delivering strong earnings growth may still produce modest returns if its valuation contracts. Conversely, a business with less spectacular growth can deliver attractive returns if earnings prove more resilient than expected and its starting valuation is reasonable.

This creates an important distinction between identifying India's structural growth themes and identifying securities with attractive prospective returns.

It also explains why the composition of an index matters. Capitalisation-weighted indices are naturally concentrated in businesses that have already accumulated significant market value. They offer broad exposure to India, but not necessarily to the companies where future earnings expectations are most mispriced.

An active approach can assess those differences through company-level analysis of competitive position, governance, balance-sheet strength, reinvestment opportunities and valuation. That flexibility is valuable only if it produces better investment decisions; active management is not inherently superior to index exposure.

A different starting point for Australian portfolios

Australian equities remain concentrated in financials and resources, while many international portfolios have become increasingly exposed to US technology.

India offers access to a different combination of domestic demand, services growth and financial development. The recent equity and currency adjustments have made that exposure more accessible, although risks from energy prices, capital flows and currency volatility remain.

The key conclusion is not that India has become cheap, or that its next market cycle will necessarily outperform.

It is that the price of accessing India's growth has changed, while the distribution of corporate earnings opportunities continues to evolve.

For Australian investors, that makes the relationship between earnings expectations, business quality and valuation more important than a broad call on India's economic growth alone.