Are Stock Market Valuations Now Justified After Correction?


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.

Also Read – Nifty PE Ratio as an Indicator of Stock Market Valuation

3 Months – Nifty PE Ratio (Trailing PE)

ValuationsThe 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. Nifty-50-pe-valuationPE 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.