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Sensex P/E vs Global Indices
Apr 10, 2017


The stock of newly listed Avenue Supermarts (D-Mart), gained 40% in the past twenty sessions. Trading at nearly 100 times its FY17 expected earnings and about 4 times FY17 estimated sales, the stock is a reflection of current market euphoria. This reminds us of March 2015. The Sensex was then just 400 points away from the 30,000 mark. Several stocks including United Breweries, Wabco, Just Dial and Jubilant FoodWorks were close to fetching 100 times multiple for their earnings.

Two years later, the Sensex is again perched near 30,000. The index is currently trading at 17.3 times estimated FY17 earnings. Considering the other MSCI indices, India's benchmark index is today one of the most expensive globally. The trailing twelve month P/E multiple of the Sensex is way higher than the long term average of 18 times.

Having said that unlike in 2008, the earnings of Indian companies are far from their peak. And a steady revival in earnings could well keep the index at lofty valuations. Individual companies, especially mid and smallcaps, though, may not have that luxury. And unless their earnings growth catch up to the steep market expectations in the coming quarters, a sharp correction is inevitable.

Data Source: Livemint, Citi Research

This Chart Of The Day was published in The 5 Minute WrapUp - How To Not Follow the Herd To Beat the Sensex 3:1

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