Fundamental hint in PE of pivotals

Current multiple of 15.74 times is lower than the PE of 18.06 times seen during the January high

The current price-earnings multiple (PE) of the Sensex stocks at 15.74 times on a trailing 12 months basis indicates that the ongoing rally on the bourses has a fundamental basis.

On January 14, 2004, when the Bombay Stock Exchange Sensex closed an all-time high of 6194.11, the 30 constituents of the index were traded at PE of 18.06 times.

Even the current market PE at 12.39 times is lower than the 15.03 times recorded last year.

This indicate that stock market as a whole has moved at a slower pace than the trailing 12 months' net profit recorded by the Indian corporate sector.

Interestingly, the bottomline of all profit-making companies has increased by 26.82 per cent during the trailing 12 months ended September 2004, while the market capitalisation of these firms has increased only by a modest 4.64 per cent.

Even in the Sensex basket, the market capitalisation has increased by a modest 3.16 per cent, while the trailing 12 months' profits increased by 17.03 per cent.

The current PE of the Indian stock markets and the BSE Sensex stocks have been based on the trailing 12 months ended September 2004. The PE as on January 14 has been based on the trailing 12 months ended September 2003.
 

There's been a decline mostly
	Price to earnings ratio
	Nov 30	Jan 14	Chng
Dr Reddy's Labs	48.59	23.91	24.67
Wipro	44.61	48.38	-3.76
Infosys Tech	37.81	34.73	3.09
Zee Telefilms	37.65	71.92	-34.28
Ranbaxy Lab	36.23	23.64	12.58
Bharti Tele	28.59	157.77	-129.18
HDFC Bank	24.56	23.93	0.62
Reliance Energy	23.88	49.31	-25.43
Hindustan Lever	23.81	25.57	-1.76
Cipla	23.62	32.28	-8.66
Satyam Computer	21.2	22.96	-1.75
HDFC	21.16	21.00	0.15
BHEL	20.7	30.54	-9.84
ITC	18.61	19.12	-0.51
Maruti Udyog	18.60	36.08	-17.48
ACC	17.80	31.96	-14.16
Tata Motors	16.74	35.05	-18.31
Guj Ambuja Cem	16.63	26.24	-9.60
Bajaj Auto	14.17	17.07	-2.9
ICICI Bank	14.13	16	-1.87
Tata Power	14.09	14.64	-0.55
Hindalco	14.00	21.42	-7.42
Larsen & Toubro	13.38	14.94	-1.56
ONGC	12.35	10.67	1.68
Hero Honda	12.32	15.47	-3.15
Reliance Ind	12.06	18.23	-6.17
Grasim Ind	11.69	23.5	-11.81
SBI	7.09	10.40	-3.31
Tata Steel	6.51	11.89	-5.38
HPCL	6.22	9.92	-3.69

Of the 30 Sensex stocks, only six - Dr Reddy's Laboratories, Ranbaxy Laboratories, Infosys Technologies, ONGC, HDFC Bank and HDFC - currently command a higher PE than the January 14 level.

Of the six stocks, the PE of Dr Reddy's Laboratories, Ranbaxy and ONGC has increased on account of their lower earnings in the trailing 12 months.

At present PE, 12 Sensex counters are trading below the Sensex PE of 15.74 times.

HPCL is trading at a PE of 6.22 times compared with 9.92 times as on January 14 this year.

HPCL's net profit was up 17.78 per cent in the trailing 12 months ended September 2004, while its market price declined by 26.1 per cent over the January 14 level. This has a lot to do with the Centre's plan to stall divestments in the oil sector.

Currently, Tata Steel is trading at a PE of 6.51 (11.89) although its net profit was up by a whopping 94 per cent in the trailing 12 months.

The State Bank of India trades at a PE of 7.09 (10.40), Grasim at 11.69 (23.50), Reliance Industries 12.06 (18.23) and Hero Honda 12.32 (15.47).