The number of companies on the BS-200 list with a low price to earnings (P/E) of 10 or below has almost trebled in the past seven months.
Business Standard’s exclusive BS-200 list comprises stocks that are traded on the F&O segment of the National Stock Exchange and commands 72 per cent of the turnover on BSE and NSE. The list now has 65 stocks with a low P/E against 24 in January 2008 when the Sensex touched an all-time high. The index has corrected 39 per cent since then.
| CRASH COURSE Sectoral trend in P/E | ||
| Price to earnings (P/E) | ||
The BS-200 stocks are currently trading at P/E multiples of 14.6 times (25.5 times on January 8, 2008 when the Sensex touched its peak. The current P/E s of BS-200 is slightly skewed on account of PSUs, which are trading at a much lower P/E of 11.1. Excluding PSUs, the private sector firms currently trade at a P/E of 16.7 times.
Analysts said the low P/Es will continue for some time as the concerns that led to the market slowdown will not disappear soon. The main reasons for the slowdown in the Indian markets are inflation, monetary tightening, control on commodity prices and the net outflow of Rs 73,242 crore by foreign investors so far this calendar year.
The liquidity tightening measures and the rise in rates have hit bank stocks hard. While banks’ P/E fell from 21.6 on January 8 to 10.8 now on an average, the State Bank was the worst hit with its P/E more than halving to 9.63 since January 8. However, ICICI Bank and HDFC Bank scrips still command high P/E values despite a major fall in market values.
Automobile and realty have also taken a hard knock due to the sharp rise in interest costs. The P/E of the automobile companies has declined to 11.2 from 16.33 largely on account of a dip in net profit. The realty stocks, however, reported a steep decline in P/E from around 70 to a modest 10 on concerns over interest rates and slowing demand from consumers.