"The share market has gone up a lot over the last 12 months and the valuations are in most cases no longer terribly compelling," Faber, editor and publisher of 'The Gloom, Boom and Doom,' told CNBC's Indian affiliate, CNBC-TV 18, on Wednesday.
"I just looked at Nestle India, it is selling at close to 50 times earnings," he added.
India's benchmark Sensex Index rallied over 30 percent last year driven by robust inflows from foreign funds betting on an economic turnaround under the leadership of new Prime Minister Narendra Modi
The market is currently trading at a price-to-earnings ratio of 16.3, above the valuation of China's Shanghai Composite at 14, but below the valuation of Japan's Nikkei 225 at 19.5.
"Everything has to move in the right direction to justify these valuations," he said.
While India's economy appears to have turned a corner, the country's upturn is still at a nascent stage, with analysts believing further structural reforms required to unlock its full potential.
Investors will be closely watching the upcoming budget on February 28 to gauge the government's reform resolve.
As such, Faber, who has been investing in Indian stocks over the past two years, says he's not inclined to add to positions right now.
"The market could finish the year somewhat higher… it all depends also on foreign investment flows and on foreign economies," he said.
- Source, CNBC