The possibility of a further de-rating for India is gaining ground, with market mandarins terming the country as pricey at over 17 times price-to-earnings.

Even after the 5-month-long bearish phase and a near-29% dip from the top, Indian shares are still considered expensive vis--vis emerging equity hubs. In end-May, it was trading at a 45% premium to the average for emerging markets, analysts maintain.

Although macro fundamentals have turned lacklustre and investor sentiment is at an all-time low, Indian stocks are still running ahead of weakened fundamentals. Analysts are quick to remind that the FY09 GDP growth has been steadily cut down from 9% to around 7.5%. A near double digit inflation and an ever-widening credit deficit, thanks to surging oil prices, are in a way de-valuing Indian markets, they say. It should be remembered that a further de-rating may come at a time when the market has fallen nearly 29% from record levels. As per Bloomberg, one-year forward PE of the Sensex is pegged at 16.9 times.

 Valuations, for sure, are on the higher side when you compare India with emerging markets. At 17X, India is a good investment destination for a longer term. However, if you consider a shorter term say one year or so there are several limiting factors that does not support such valuations, said Kotak Securities vice-president, research, Ketan Karani.

Inflation, impact of crude prices, growth slowdown, high interest rate regime, unstable rupee, political instabilities et al pose greater challenges for India vis-a-vis other emerging markets. India is among the countries that will be badly impacted by rising crude prices.

Setting aside long-term strategies, foreign investors are now only looking for short-term opportunities. The risk appetite of these investors are also on the lower side. If the Indian market doesnt re-rate a bit more, they would sell-off and move on to favourable markets like Russia or Brazil, Mr Karani added. In a recent interview to ET , JP Morgans Asian equity strategist Adrian Mowat had set a target of 9,900 for the Sensex. Mr Mowat is of the opinion that India is relatively expensive when compared with other emerging markets.

FIIs are finding Indian markets relatively less attractive due to the run-up in the markets and high PE coupled with low yield is the reason for being less attractive, says Mowat. Indian equities are not expensive relative to cash and bonds, Mr Mowat opined.

Most of the old-time and experienced foreign investors have been underweight or at best neutral about Indian market for quite some time now.

India is trading at a higher premium than other emerging markets. But from what we see, there are not many markets that can guarantee growth as India does, said DSP Merrill Lynch managing director Andrew Holland.

According to Mr Holland, corporate earnings would be a bit of a concern in the coming quarters as companies will face lot of margin pressure as a result of rising input costs. There is talk of a de-growth among analyst circles. Ill be happy even GDP drops to 7.5% annually, Mr Holland added.