Nifty achieves another milestone as valuation hits all-time high of 40x

Sensex crosses 52,000-mark for first time amid huge investments by FPIs

By Administrator_ India

Capital Sands

The benchmark Nifty50 index on Tuesday reached another milestone in its journey to scale fresh peaks. The index price-to-earnings (P/E) multiple reached an all-time high of 40x on Tuesday when it made an intra-day high of 14,590.65. The index closed the day with a P/E multiple of 39.9 and earnings per share (EPS, or earnings per unit of the index) of Rs 364.6.

This is first time in 25 years that a benchmark equity index in India is trading at a P/E multiple of 40x or higher. The BSE Sensex had last traded at 40x or higher in October 1994. The Sensex valuation had peaked at a P/E multiple of 57.4x in April 1992 at the height of the Harshad Mehta-led rally on the bourses. It is currently trading at a P/E multiple of around 35x — the highest in 25 years.

Analysts, however, say the current valuations are not comparable to the market valuation in the early 1990s.

Analysts say a relatively low m-cap made it easier for traders to push valuations to extreme levels in the past, compared to the current market.

According to the data from the Reserve Bank of India , the combined m-cap of all BSE-listed companies was Rs 3.23 trillion at the end of March 1992 and Rs 4.35 trillion at the end of March 1995. This has now ballooned to Rs 197.5 trillion as of Tuesday.

The underlying corporate and economic fundamentals have, however, not kept pace with the surge in stock valuation on the bourses in the past nine months.

For example, while the Nifty valuations touched a new high on Tuesday, the index underlying EPS — that tracks the combined earnings of 50 index companies — is still down nearly 20 per cent from the highs reached in January this year.

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