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The PE Ratio of the NIFTY over the last 20 years

The Nifty’s PE Ratio is the Nifty’s market cap divided by the earnings of the companies, added up. The ratio is used as a valuation relative to the past; is the PE expensive or cheap?

Three Important things to note about the NIFTY PE:

  1. Standalone versus Consolidated: NSE published standalone PE for the NIFTY up until March 2021. Starting April 2021, they switched to using consolidated earnings to calculate the NIFTY PE ratio. Therefore you see in the table below, a dip from 40.1 in March 2021 to 32.7 in April 2021. This means the NIFTY PE ratio now is not directly comparable to the PE ratio before April 2021. Any analysis that draws a relationship between historical returns to prevailing PE ratios can not directly be applied to the current NIFTY PE Ratio
  2. NIFTY PE means Price and Earnings: Since it is a ratio, the value of the NIFTY PE ratio moves based on how the Price (the NIFTY) moves, but also how the Earnings of the NIFTY companies move. This means the NIFTY PE ratio can move up or down even when the NIFTY is unchanged depending on whether the Earnings decrease or increase. Similarly, the NIFTY could have risen and yet the PE Ratio could fall because Earnings grow faster than how much the NIFTY rises.
  3. Price-Earnings is just one metric: Just like just a point-in-time number on a weighing scale does not tell you much about the health of a person, the NIFTY PE Ratio on its own cannot be used to conclude whether markets are under or overvalued. A low-growth company might be expensive at a 12x PE Ratio while a high-growth company might be cheap at 35x PE. The same applies to the consolidated NIFTY PE Ratio.


Note: Data source is Nseindia website. Chart shows average historical NIFTY Price-Earnings ratio for the month from 1999 to present. NSE used trailing four quarters standalone earnings from inception till March 2021. Starting April 2021, NSE uses consolidated earnings for the Price-Earnings calculation.

 

Click here for SENSEX PE Ratio

Click here for NIFTY 50 Returns (historical)

NIFTY PE Ratio Chart

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