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Charts & Analysis

Chart: Broad Market Nifty P/E Ratios Still Too High To Call This A Value Buy, EPS Has Shrunk In The Last Year

Nifty’s P/E ratio – something we at Capital Mind track regularly – was looking like it finally came into the 18 zone on Thursday. But the Bank of Baroda results have killed much of the excitement around the Nifty EPS growth, which is down about 1.85% from last year as we write this:

 

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While we seem to be in slightly better shape on the valuation, the multiple is still too high.

If the Nifty had to be at an 18 P/E (which would just about be the average P/E and therefore not exactly undervalued) it would have to fall to 6673, which is another 6.8% fall from here.

The Nifty 500: Even Worse

The CNX 500 is both:

  • at a higher P/E
  • at a lower EPS growth

than the Nifty 50.

India should start using the Nifty 500 more – especially for P/E calculations since it’s a broader index.

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Our View: This doesn’t look like “value” even now. At best, it’s close to a “mean valuation”, but with terrible EPS growth it needs to be valued much lower. The CNX 500 is even more scary in terms of overvaluation. It may be more useful to buy some stocks now but to keep it less aggressive until the P/E ratio becomes attractive enough for broad market bets.