P/E ratio of BSE scrips dips to 17.24

The market-wide weighted price to earnings (P/E) multiple, which soared to an unsustainable level of over 28.1 when the Sensex hit its all-time high of 21,282 on January 8, has come down to 19.19, with the benchmark index hovering around 15k levels.

The weighted P/E of the BSE stocks has also declined from 27.4 to 17.24. This is largely on account of the 30 per cent plus correction in the market prices between January 8 and on Monday. 

MELTDOWN Sensex stocks with high P/E
	Price to earnings (P/E)
	Jan-08	Mar-17
Larsen & Toubro	71.54	41.42
Reliance Comm	53.78	36.18
BHEL	43.69	30.33
HDFC Bank	45.76	30.00
HDFC	45.13	28.44
Reliance Energy	65.91	27.87
Hind Unilever	28.75	26.23
Bharti Airtel	34.48	24.56
ITC	29.75	23.07
Reliance Ind	34.03	22.92

In simple terms, an investor who was willing to pay Rs 28 for a rupee earned per share on January 8 is now willing to pay only Rs 19 for the same stock.

This has happened largely due to the global meltdown following the sub-prime crisis and projected slowdown in the US economy in the first two quarters of CY08.

The current weighted P/E multiple has been compiled by taking into account the net profits of 2,060 companies for the trailing 12 months (TTM) ended December 2007.

The P/E as on January 8 was based on the TTM net profit ended September 2007. The weighted P/E is the total market capitalisation of 2,060 companies divided by their net profit in the latest TTM period.

If one expects the corporate profits to grow by 15-20 per cent in FY09, the Sensex's forward P/E at the current value is 17-17.8 times and the market wide P/E is 15.5-16 times.

The P/E of A group stocks has fallen from 28.3 to 19, the stocks of B group and S group have reacted sharply to the market meltdown with the P/E of these groups plunging from 23.6 times on January 8 to the current 15.

While the marketwise P/E multiples have come down, as many as 650 stocks are trading above their average P/Es. The P/Es for 1,463 stocks have been relatively cheaper, with multiples of 10 and below.

Among the Sensex stocks, Larsen & Toubro is trading at a P/E of 41.4 (down from 71 on January 8). Reliance Communication is not going cheap either, as it is trading at a P/E of 36.2 times.

Though HDFC, HDFC Bank, DLF, BHEL and Reliance Energy have declined by 25-50 per cent from their January 8 highs, they are still trading at P/E multiples over 25-30 times.