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The Nifty 500 P/E Hasn't Been This High Since…April 2000.

Nifty-500-PE.png

A few days back we posted about the Nifty P/E – and got a ton of requests about the even broader market. Is the Nifty 500 – the top 500 stocks of the market – doing any better?
Apparently, no.
The Price to Earnings Multiple of the Nifty 500 is at 27.66, while the earnings of this index have grown, in aggregate, about minus 3%.
Nifty 500 PE vs Earnings Growth
And this absolute number of the P/E ratio is the highest since…April 2000.
It’s higher than the highest P/E we saw in the Nifty 500 even in the boom of 2007. The highest in 16 years now.
Nifty 500 PE
And many of you might not remember the year 2000 – and I was learning the hard way at that time how a “tech” mutual fund could quickly go from Rs. 10 to Rs. 2. (It was my first ever mutual fund investment)
April 2000 was when the dotcom bust had just started. March 2000 was the high on the Nasdaq which was surpassed only recently (it had fallen 78% since). 16 years of nothingness.
This basically serves as a marker. Of course we can see even higher P/E numbers – if global interest rates are zero or negative, then the P/E ratio can be unnaturally high too. The inverse, Earnings to Price, is the “yield” of a stock or index. If this yield is low, but risk free interest rates are negative, then it’s still justifiable.
In some people’s books. In my books, it’s insanity. At this extremely low earnings growth I think it’s clinical insanity. I will participate but I know it’s insanity and I am grateful for any profit.
So yeah, if you’re thinking that uhem, it’s time to invest in the market now, everyone seems to be making money, brokers are sending me SMS, random people are calling me to give me free advice on how I can make 100% in five days….these are all warning signals. Reduce leverage, keep yourself nimble.
 

  • Arup says:

    Thanks a ton for this and the earlier article on NIFTY PE. Very good analysis at an apt time for common investors.

  • Rajendra says:

    Thanks for the interesting article and charts.
    “at 27.66, while the earnings of this index have grown, in aggregate, about minus 3%.” -> isn’t that the key difference from 2007 peak? We seem to be at lower end of the earnings growth cycle compared to 2007 when it was in the ~20% region! The same chart also shows that earnings growth doesn’t stay in the negative territory for long. If the growth takes mean reversion path from here and goes to ~10% or so, the P/E can drop without significant drop in the prices. Having said that, the same argument fails for 2000 peak – high P/E with negative growth cycle.. Oh the markets!!

  • Hardik says:

    For those saying that global interest rates at record lows justify the current high PEs in India, a better comparison would be with Indian interest rates. The 10 year government bond still trades at over 7% which is lower than the last couple of years, but is no where near the record lows we are seeing globally.