No Valuation Comfort
A LITANY OF FACTORS, from rising crude oil prices to the record-low rupee, the liquidity crunch post IL&FS loan default, and the SinoUS trade war led to a battering on Dalal Street. The NSE Nifty is off 11 per cent from its all-time peak of
11,760.20 on August 28. While trailing Price to Earnings (PE) multiples should not be seen in isolation, they do suggest that the market is still trading at a premium over its historical PE ratio. The 12-month trailing PE for Nifty at 25.33 is still higher than its five-year average of
22.75 and 10-year average of 20.98. Forward multiples at 20 times
FY19E earnings per share (EPS), too, suggest that earnings need to catch up or one may be staring at further downgrades. The spread between bond and earnings yields is 4 per cent, even after the recent correction. One can only hope for robust earnings in the September quarter. Otherwise, the situation will deteriorate further as we move closer to state assembly and general elections.