India's Real Estate Sector More Overvalued Than Stock Markets: Valuation Expert Aswath Damodaran
Valuation expert Aswath Damodaran highlights the overvaluation in India's real estate market, which is even more overvalued than the stock markets. He explains the reasons behind this trend and its implications for investors.
Real EstateStock MarketsOvervaluationAswath DamodaranInvestmentReal EstateSep 09, 2025
The Professor at NYU Stern School of Business explained that he computed the P/E ratios for various countries and found that India had the highest P/E ratio. According to Damodaran, one of the reasons for the overvaluation of stock markets is the lack of alternative investment options for Indians. “The country is getting wealthier. The wealth has no place to go but into Indian stocks. What exactly you're 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.
Damodaran has previously highlighted overvaluations in India's real estate market. Soaring realty prices have emerged as a pressing concern for more than 81 percent of property seekers across India, with average residential values surging over 50 percent in just two years, according to ANAROCK’s Consumer Sentiment Survey for H1 2025. The survey reveals a clear gap in the affordable housing market, with 62 percent of potential buyers unhappy with existing options and 92 percent dissatisfied with the locations of these projects.
Looking ahead to 2026, Anuj Puri, Chairman of ANAROCK Group, expects average housing price growth to range between 6–7 percent, with rents likely to rise 7–10 percent, both outpacing inflation. India's most valuable real estate companies are now worth a combined Rs 16 lakh crore, as per the 2025 GROHE-HURUN India Real Estate 150 report, which is higher than the GDP of some countries like Kuwait.
Damodaran explained why Indian markets are overvalued and why an immediate correction is unlikely. “I think part of the reason the Indian market is overvalued is that many institutional investors fear being left behind if they are not in the Indian market,” he said. This, combined with the lack of other investment options, has steadily pushed the markets higher despite high valuations. There is no catalyst that can cause an immediate correction, he added.
Speaking about the constant FII outflows from Indian equity markets, Damodaran noted that foreign institutional investors chase returns. “You have two good weeks in the Indian market. They'll be here really quickly,” he said.
In a different context, Damodaran compared US President Donald Trump to a high-risk, extremely volatile stock. “I think the word I would use to describe him is absolutely unpredictable. He gets better deals for himself. He does keep people off balance. I would not want to be negotiating with Donald Trump because I have no idea where he's coming from the next minute,” he said during an interview with the business news channel. Damodaran added that he would never buy the 'Donald Trump' stock as it is highly unpredictable. “High-risk stock where I don't know what business you're at. You keep changing your mind. Today you're a retail company, tomorrow you're a manufacturing company because you're effectively whatever you woke up that morning and said you were going to be,” he quipped.
Damodaran noted that Chinese President Xi Jinping and Russian President Vladimir Putin would be less volatile stocks. Prime Minister Narendra Modi as a stock would represent India's growth story.
Damodaran advised investors to think long-term and not focus on short-term gains. Young entrants into the market should build up their investment portfolios to preserve and grow their wealth. “If you have a job, do really well at that job because that's where you get the income to save. Most people who are investing in the market have other jobs on the side and they tend to invest as part of what they do in the evening or the lunch break. And if you're doing that, that's fine. But take care of what's creating the income that you're then investing to preserve and grow,” he said.
He recommended investors to put money into the correct index funds and avoid catastrophic decisions. “You take all your money and buy that one stock that everybody says to you, I don't care how great the hype is, you are putting yourself at risk of losing 30% of your portfolio, 40% of your portfolio. Those are the kinds of mistakes you cannot come back from. So, make up your mind what you're going to do. Less activity over more activity. The more you trade, the worse your odds are of making good returns,” he added.
Damodaran noted that healthcare is a sector with tremendous potential to grow.
Frequently Asked Questions
Why are Indian stock markets overvalued?
Indian stock markets are overvalued due to limited investment options and the country's growing wealth, which has no other place to go but into stocks.
How does the real estate market in India compare to the stock market?
India's real estate market is even more overvalued than the stock market, with residential values surging over 50 percent in just two years.
What are the implications of overvaluation in the real estate market?
Overvaluation in the real estate market can lead to a bubble, making it difficult for potential buyers to find affordable housing and increasing the risk of a market correction.
What advice does Aswath Damodaran have for investors?
Damodaran advises investors to think long-term, avoid catastrophic decisions, and focus on less activity over more activity in the market.
What sectors does Aswath Damodaran see as having growth potential?
Damodaran notes that the healthcare sector has tremendous potential to grow.
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