InvestorQ : With the Sensex crossing the 55,000 mark, how does the index compare on P/E ratio and P/BV ratio with the past years?
vidhya Laxmi made post

With the Sensex crossing the 55,000 mark, how does the index compare on P/E ratio and P/BV ratio with the past years?

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sarah Leo answered.
4 months ago
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One issue that people are worried about is whether the markets can justify such high levels of P/E ratios. Let us look at actual numbers of the P/E first. If you look at the last 20 years, the current average P/E of Sensex at 31.94 is highest on record. Ironically, 3 of the highest P/E levels were seen in last 3 years in the midst of COVID and the recovery. Investors fear that Indian markets are getting expensive like the US, with valuations almost 9-PE higher.

Let us also look at two more parameters of dividend yield and P/BV. In terms of dividend yield, it is also giving an overpriced signal being below 1 for the first time in 20 years. Let us also look at P/BV. What is of interest is that the P/BV of the Sensex at 3.32 is still way below the 2007 peaks of 5.47. This is despite limited capital investments and the capital cycle revival will also push this ratio lower. That is certainly something that favours Sensex today.

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