Are stocks fair or expensive?  Here's what Nifty valuation suggests

Are stocks fair or expensive? Here’s what Nifty valuation suggests – Mail Bonus


Nifty50 valuation, based on various variables, only looks expensive at the moment. Analysts believe that although revenue is likely to decline in the future, they see the market gradually moving higher.

Vinay Khattar from

Auður said that the market has corrected by almost 16 percent from top to bottom. He said the value began to appear in the range of 15,000-15,500.

Khattar’s FY24 EPS estimates, which were up to Rs 1,027, have corrected to Rs 1,000 points, adding that there could be some further declines this quarter.

“But we do not see a significant correction or decrease in Nifty50’s profits for FY24, based on the overall market structure and if you research across sectors. If you study Nifty’s revenue and PE multiplies historically, Nifty50 rarely drops below 14,000-14,500 points, unless “15,000 to 15,500 is a very good level for people to start using some capital,” Khattar told ET NOW.

Here’s what experts say about the Nifty50 valuation:

PE valuation
Since October 2021, a maximum of 23 times, PE Nifty50 has fallen by 23 percent. This includes a 14 percent price adjustment and an 11 percent time adjustment. The current PE is 17.4 times at an 8 percent premium to a 15-year average of 16.1 times.

On a forward PE multiplier basis, the Nifty50 trades at 16.1 times, indicating an index target of nearly 17,000, based on the Bloomberg Consolidated June 2024 EPS estimate of Rs 1,060.

Emkay Global said the market was not expensive at the moment, it should strengthen in the near future. Every sustainable increase depends on reducing the outflow of FPIs, it said.

Profit against bond yield

Among other valuation variables, Nifty50 yield, i.e. yields minus bond yields have declined recently, thanks to a modest 10-year G-Sec yield and a Nifty P / E decline. The current range of 160 basis points (5.75 per cent – 7.35 per cent) is even larger than the 10-year average of -125 basis points, which indicates that the index remains slightly more expensive than the historical average.

The average yield range of 125 basis points would indicate a current yield of Nifty50 of 6.1 percent or 16.4 times the forward PE or 15,100 index.


Nifty vs EM space

Nifty50 is currently trading at a 62 percent P / E spread based on the MSCI-EM index. This is against a 43% average for 10 years.

“Similarly, to return to a 43 percent P / E spread, Nifty needs to fall by 11-12 percent in the near future,” Emkay Global said in a comment.

That would mean a forward P / E going down 17.4 times to 15.3 times, or 14,100 index points, the broker said. With a forward P / E ratio of 15.3 times today, Nifty will finally trade 9 percentage points below the 10-year average after 16.9 percentage points, Emkay said.

Emkay said the FPI outflow in October 2021-March 2022 was driven by India’s “expensive” valuation and international risk due to the war between Russia and Ukraine. But since March 2022, the weakness of the rupee and rising long-term real yields in the United States could have contributed more to FPI sales than “expensive” stock valuations.

What experts say

Stockbroker Prabhudas Lilladher has set a target of 19,066 for Nifty50 in June 2023 on the assumption that the worst could be over for the Indian market as international headwinds subside. Prabhudas Lilladher’s bull case estimates Pegs Nifty50 at 21,525 and Bear Case estimates Pegs Nifty at 15,052.

Emkay Global said the domestic stock market could receive $ 3-4 billion a month from FPI sales without significant price losses, given that MF’s inflow of $ 1.5-2 billion, over 70 percent of which comes through SIPs. It sees non-MF purchases of USD 1 billion and direct retail equity flows of USD 500 million to USD 1 billion.

This broker sees the Nifty50 at 18,000 in June 2023 compared to its previous forecast of 19,000 in March 2023. Markets are likely to be in a better position in 12 months, it said in a policy statement, adding that we will probably be past Peaks in inflation, policy rate and bond yields before that time.

(Disclaimer: The opinions, suggestions, opinions and opinions of the experts are their own. This does not represent the views of the Economic Times)


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