On 23rd May 2019, the Sensex hits its all-time high with the index hitting an intraday high of 40,124 level and Nifty crossed 12,000 levels touching an intraday high of 12,041. On that day, the PE ratio of Sensex stood at 28.35 and Nifty stood at 29.02.
The Nifty PE further soared to 29.9 on 3rd June 2019, its highest ever. At these valuations, markets are extremely expensive and such levels are unsustainable given the earnings reported by the constituent companies of Nifty.
3 Months – Nifty PE Ratio (Trailing PE)
The recent correction in the stock market was inevitable as valuations had become unsustainable. Historically high PE levels (above 28) have led to steep corrections in the markets. High PE ratio occurs when anstock prices rise at a faster pace than earnings which does not reflect the true picture of the market.
Nifty 50 Companies Valuation After Correction
Key Sectors like BFSI, Auto, IT and Oil & Gas have witnessed considerable correction.PE for both April and July has been calculated on the EPS for FY 19 (i.e.TTM EPS for quarter ened 31 March 2019). To be updated as and when the results are out.
About the Author
Rajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.Follow @SanaSecurities