P/E at 22.47 times makes market still expensive

With the Sensex declining by 15 per cent from its peak of 20,728 on January 14 this year, the P/E has settled at 22.47 times. However, it continues to be expensive compared to other indices, with the exception of China.

The Sensex was trading at a price to earnings (P/E) multiple of 28 times on January 14, which was expensive compared with other Asia-Pacific and global markets.

The China B shares index, however, was expensive at around 50 times, whereas the Dow Jones was trading at a lower P/E of 17 times.

The current and projected P/E multiples indicate that the Indian stock market is the most expensive among the US, Europe and Asia-Pacific markets, with a forward P/E of 23.5 times (20 times considering the recent fall) for FY2008-09 (calendar year 2008 for other countries).

The US represented by S&P 500 is trading at a FY08 P/E of 15.1 times and China trades at 19.3 times CY08 earnings.

The other comparatively inexpensive markets are Japan (15.7 times), Germany (12.5 times), France (12.2 times), United Kingdom (11.07 times) and Canada (13.9 times).

The higher P/E enjoyed by Indian markets is justified, given the significantly higher growth rates in the country, according to analysts. Only China's long-term growth rate is higher than that of India. But China is also trading at a higher P/E at the moment.