P/E multiple up 51 per cent in a year

The price to earnings multiple (P/E) of stocks traded on the Indian bourses moved to 13.03 times based on trailing twelve months earnings as at the end of September 30, 2003.

Exactly a year ago, the P/E multiple was lower at 8.69 times the trailing twelve months earnings of September 2002.

While the P/E ratio of the broad markets has risen 51 per cent in the last one year, the markets has moved up 94 per cent during the comparable period.

The slower rise in P/E ratio was accounted by a 29 per cent rise in net profit during the trailing 12 months ended September 2003.

Interestingly, manufacturing firms scored over all others with a P/E of 16.90 times, up from 12.34 times a year ago.

However, the Nifty stocks are relatively costlier with a P/E of 16.99 times, up from 12.04 times a year ago. The BSE Sensex stocks are traded at P/E of 15.25 times, up from 11.64 times a year ago. Banking and non-banking finance stocks are still going cheap with a P/E of 7.95 times, albeit up from 5.68 times an year ago.

The P/E trend shows P/E of 51 sectors doubled in the last one year while that the P/E of 33 sectors moved up between 50 and 100 per cent.

Only three sector registered a drop in P/E multiple in the last one year. This study shows there was a strong P/E growth for small sectors.

Ferro alloys, transmission line towers, pollution equipment, air conditioning, readymade apparels, mining, metals and pesticides sectors recorded a healthy growth in P/Es, indicating that the profitability of these sectors is likely to increase in the coming years.

The market players seems to be cautious in their approach to evaluating the stocks in the information technology sector.

The P/E of the information technology sector moved up to 28.24 times from 25.71 times an year ago despite a 14.4 per cent rise in net profit during trailing twelve months.

The growth in P/E of steel, automobile, cement, chemicals, FMCG and bank stocks have not moved up with the markets.

Though the over all P/E ratio of stocks traded on the BSE moved up above the double digit level, there are as many as 37 sectors whose P/E ratios are still below 10.