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Charts & Analysis

Chart: Oh, We Are Still Overvalued, Says the CNX 500 P/E

A note I’d recently spoken about in Premium shows us something very important. Even as we had a near 2% down day (nothing compared to China which had an 8.5% down day) we are, er, slightly overvalued.


I plot the Price to Earnings ratio of the CNX 500, which is the broadest index we have in India. And in that way, I plot its earnings growth over the last year. And what you see is surprising:



We are at the highest P/E ratio levels since January 2008.

And we are at the lowest earnings growth levels in three years.


Markets go through phases of overvaluation and undervaluation. From Jan 2014 to Jan 2015, earnings growth for the broad index picked up, to reach 20% growth levels and since Jan 2015, results have been just disastrous.

Look at the CNX 500 EPS:


We haven’t seen damage of  this magnitude on earnings since early 2009 – and markets were, at that time, less than 50% from the peak. We are currently less than 5% below the top!

And Yes, India’s Not Been That Great

You say this year hasn’t been so great? Okay, let’s take a rolling five year growth then. (Each red point on the graph below represents the EPS growth from five years earlier to that date).


Lets just remember this when we say “big fall”. We’ve been overvalued a long time now and even if we fell 30% from here, it wouldn’t be too much. Just a different perspective.

  • Shan says:

    Yeah I’ve been worried about the growthless rise simply by pe expansion. This is unsustainable. But it’s not clear when or if the markets will fall. That’s the joker in the pack. Simple idea is to buy the few stocks that are still cheap and hope to ride out the inevitable crash. But yes on a whole we’re sitting on a time bomb

  • mec says:

    Deepak, do you compute the EPS growth and P/E yourself for the index or is there an easier way like directly pulling from BBMG ?

  • Kuldeep Randhawa says:

    Deepak ,
    Can you draw a chart based on avg 10 year PE of CNX500 and Avg growth of CNX 500 in last 10 year.
    Then it will be easy to predict the upside potential and downside risk of the market.

  • Mahesh nawander says:

    Sir you are fully correct on your view that we in a are over valued market.
    Fall is definite sometime soon but I don’t think the fall will have magnitude of 30 ℅ . in that way I am half way agree your view.
    Sir I myself was of the view of 6600 from beginning of March 2015.because historical data shows that sensex falls from where it starts rally.
    But sir these days markets are heavily hedge or nifty puts are always in position of bearish traders. This is the reason that today’s Indian markets could not fall 30℅.because underwriters will not such easily pay returns in 3000 multiples of puts.
    Chinese retail investors were only and only betting on upperside of markets. And created such bubble to be bursted.
    Indian markets are consolidating since October first high of 8400.and as such little looks chance of nifty falling below October lows of 7700.

  • Mahesh nawander says:

    Deepak sir I am nifty full time market trader since last 18 years of experience.and about investments my father was investor since 1978 . that gave me lot of experience sir.
    Can you recommend me any job/placement as research assistant ?
    I am a commerce graduate .recently passed nism derivatives module for career opportunity.
    I daily watch out US markets closing and update with nifty technical data and watch fundamentals through money control ET now trading etc etc.
    My strenght is I can predict daily weekly monthly trends of markets with nearby 90℅ accuracy.
    I read Ramayan Ramcharitmanas guru charitra parayan bhagwatgita vishnusahastranan shivsahastranaam venkatesh sthavan etc etc etc.which is my mediation to get out of maximum of my intellectual and sixth sense from my eternal soul.