Sep-19 | Sep-27 | Oct-09 |
Trading | 109.26 | 137.87 | 189.81 |
Engineering | 37.79 | 39.86 | 43.21 |
Telecom | 33.37 | 36.14 | 38.80 |
Sensex | 22.99 | 24.17 | 25.92 |
Power | 20.96 | 22.11 | 25.17 |
IT | 23.50 | 24.11 | 25.01 |
Pharma | 19.83 | 19.70 | 19.82 |
Refineries | 15.41 | 16.83 | 18.50 |
Banks | 17.23 | 18.22 | 18.18 |
Metals | 14.02 | 15.31 | 15.55 |
Steel | 11.09 | 12.11 | 12.48 |
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If corporate India could achieve the earnings growth of 20 per cent in 2007-08 and 2008-09, the P/E at the current valuations comes down to around 15 times.
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In 1993-94, when foreign institutional investors (FIIs) were allowed to invest in Indian equities, the P/E valuation had risen to a historic high of over 30 times. However, long-term recession set in after the second half of 1995-96 and market valuations of stocks plummeted below 10 times by 2002-03.
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The BSE Sensex has crossed historical averages on all parameters and the Sensex now trades at a P/E of over 25 times based on the earnings for the trailing twelve months ended June 2007.
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The Sensex, according to Motilal Oswal, is trading at a P/E of over 21 times on the forward earnings for the financial year ending March 2008. The 15-year average P/E for the Sensex is 18.3 times.
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According to Motilal Oswal, the valuations are higher than the historical averages and are driven by the current trillion-dollar GDP, strong government finances, surplus liquidity and easing of interest rates.
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However, some risks that the liquidity-driven rally is ignoring are slower momentum in earnings, valuations at the higher end of the averages and a fragile political scenario.
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The current P/E valuations of all profit-making companies look pretty well largely because of lower P/E valuations for stocks of public sector undertakings (PSUs).
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The P/E valuation of the PSUs is currently averaged around 14.5 times, while the P/E of private sector companies is around 24.6 times.
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It means the P/E valuation of Indian companies does look stretched largely because of poor market valuation for PSU companies.
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The Sensex P/E of 25.92, based on the net earnings for the trailing twelve months ended June 2007, will go up to 27 if one excludes PSU companies from the valuation.
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Meanwhile, the 2,000-point gain in the Sensex has been overwhelmingly contributed by the Reliance group stocks.
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The sectors that have not participated in the current rally are banks, IT, steel, pharmaceuticals, personal care, cement and many others. |
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