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Charts & Analysis

Chart: The Nifty P/E Ratio Is Still Too High For Comfort


The Nifty has fallen a little – about 8% off in two months. But, in general, the valuations still remain rich. Using standalone price to earnings ratios, the Nifty’s P/E ratio is still above 20, while earnings growth languishes.
Chart: The Nifty P/E Ratio Is Still Too High For Comfort
Earnings growth is still negative – and if you took consolidated results it would show you that aggregate earnings fell 8% from a year ago.
Even the broad market remains overvalued. The Nifty 500 P/E is still nearly 25, but earnings growth has been dismal. Earnings for the Nifty 500 have contracted for every quarter since Jun 2015.
Chart: The Nifty P/E Ratio Is Still Too High For Comfort

The Impact: Are We Still Nuts?

With the demonetization impact ahead of us, earnings are quite likely to contract. They have contracted even earlier. So earnings will fall even more. That does not augur well for a market that is so hugely overvalued.
At some point this kind of valuation poses a threat – because it can’t sustain here this long. We’ve had too many quarters of high expectations and continued earnings contractions. Just a note: beware.

  • Ajay says:

    True… It’s expensive and correction is likely around the corner…. Don’t understand why still not corrected… Probably FII liquidity is the reason…

  • Rajat Gupta says:

    Hi, I track the PE & EPS numbers for Sensex, Nifty & NSE 500. I found something strange which happened in Sensex EPS numbers between Nov 11, 2016 and Nov 15, 2016. The EPS number on Nov 11 2016 was 1338.933 (26818.82/20.03) but on Nov 15, 2016 the EPS number was 1260.404 (26304.63/20.87). The EPS number went down by roughly 6% (market on Nov 15 2016 fell by 514 points). I didnt see any such adjustment (if I may call it) in Nifty & NSE 500. What can be the reason for this downward move in the EPS number in 1 trading day? Did any Index heavyweight came out with ultra-bad numbers? But that also can’t push the EPS number down by 6% in a day. Any clues? I am part of CM Premium membership also.