NEW DELHI: Domestic equity market continues to defy valuation concerns and scale new highs every passing session. With this, the price-to-earnings ratio (P/E) of BSE Sensex has now climbed to 26, its highest level in the calendar year 2023. Nifty’s P/E has jumped to over 24. Rallying for the fifth straight session, 30-share pack Sensex rose 302 points to close at a record high of 67,097. Broader NSE Nifty gained 84 points to close at a high of 19,833.
On the back of strong foreign fund inflows, improving domestic macroeconomics and expectations that central banks worldwide would hit the pause button on future rate hikes, Sensex and Nifty have gained about 16% each since March 29. Sensex has added over 9,000 points during this period while Nifty has added over 2,750 points.
“Liquidity flowing into Indian markets from abroad and local investors have led to the expansion of valuations on expectations that earnings growth over next few years will bring down valuations that seem high now,” said Deepak Jasani, head of retail research, HDFC Securities. In July, foreign institutional investors (FIIs) have been buyers in 12 out of 13 trading sessions and have invested over `16,250 crores via the stock market alone, excluding bulk deals.
Jasani said once Q1 results are out, “we will better understand FY24 EPS (earnings per share) estimates and the absolute and relative valuation of the Indian markets”. “Disruption in businesses has led to a shifting of market share from unorganised and small players to larger players who have mastered the art of cost-cutting. This has led to an expansion in the valuation of such stocks,” said Jasani.
Other experts believe while the domestic market is running ahead of fundamentals, it may remain high in the near term. They said Indian markets have traded at a much higher P/E in the past. At 19,800, Nifty is trading at above 20 times the estimated FY24 earnings. This is higher than the long-term PE of 16. Santosh Meena, research head, of Swastika Investment, said, “Current uptrend in Nifty is undeniably strong and there is a possibility it may surpass 20,000 mark by end of this month.”