New Delhi, Aug. 5 -- India's equity markets are showing signs of fatigue as stretched valuations collide with slowing profit growth, undermining the country's appeal among emerging markets (EMs), according to a report by Nuvama.

The report noted that despite a strong rebound, Nifty and SMIDs (Small and Mid-cap Stocks) rising 12 per cent and 20 per cent respectively since April lows--underlying earnings momentum has weakened, calling the rally's sustainability into question.

"We argue this is unsustainable and skews the buyer-seller incentive structure decisively in the latter's favour," the report added.

The report added that the BSE500's median price-to-earnings (PE) ratio stands at an elevated 40x, while median trailing earnings grow...