Nifty PE crosses 24|A statistically informed entry-exit model!


@pattu’s study concludes that if one invests at a NIFTY PE level of 25 and above, it would take about 5 years to get a small but positive return. Other than that, there wasn’t a strong correlation between NIFTY levels and returns. In fact, there have been only 3 occasions (2000, 2007-08, 2010) that NIFTY PE has breached 25 between 1999 and 2014…so the study still isn’t entirely conclusive. That’s a very small sample. Still, it makes sense (to me) to avoid buying when Nifty PE is very high.

If buying only when Nifty goes below average, booking profits when Nifty is high is your game (and you stick to it), more power to you. Wishing you all the best!

(Deepak Venkatesh) #1186


Had done an analysis in parallel to the one you mentioned. But if one is investing in the index it’s not worth at 25 pe or above imho (2nd table below). I have always believed that a successful investor is either a good stock picker or a good timer in order to be able to make some money. Else we lose.

Have a look at the following tables/charts.

The returns in purple are over 7% (risk free rate in my parlance)

a view of pe, pb and div yield.


(Amit Jain) #1187


Nice number crunch. Really good !!

(James Sebastian) #1188

What would be estimate of current nifty PE and PB?

(josephseby) #1189

any body noticed sudden decrease in EPS of nifty

Nifty PE 25.14 @ nifty 10128 as on april 4rth, nifty EPS is Rs 402/- ie it has decreased from march EPS of 410/-. do any body guide me???

(Raj Nair) #1190

There are some changes in Nifty Index stocks from April 2nd. Ambuja Cements, Aurobindo Pharma and Bosch are out. Replaced by Bajaj Finserv, Grasim and Titan.
This could be the reason for big drop in EPS and jump in P/E.


(Gaurav Agarwal) #1191

On 12-May-2014, nifty closed at 7,014 and price to earning ratio according to NSE website was 19.47 which gives an EPS of 360.25.

As of yesterday i.e 6-Apr-2017, nifty closed at 10,331 and price to earning ratio is 25.65, so EPS is 402.77.

According to this data nifty has shown gain of 11.8% in the period of 4 year, which translates into yearly gain of 2.95%.

With GDP growing at more than 6% CAGR, Is Nifty growing at only 2.95%??


There has been cyclical distress in sectors like corporate banks, telecom and pharma. So profit of companies like SBI, ICICI, Axis, Airtel, Sun Pharma, Dr Reddy and Lupin are either depressed or negative. That is making Nifty optically more expensive than reality.

(Changu Mangu) #1193

Hi Gaurav,

To formally answer your question, now here is the official data. It has
closed at 59% :slight_smile:

Watch this month of April now. It will show a very interesting picture of
what we think if it plays out.

(Chandragupta) #1194

The distress is real, not illusory. So I don’t understand why you say Nifty is “optically more expensive than reality”.

And the distress is not cyclical either. Pharma and Telecom are non cyclical sectors, in Banking the distress is far more than what a normal cyclical downturn warrants. It is clear that the rise of Nifty has so far not been mirrored in earnings. And we don’t know about the future.


For equity investors, there is no option but to be optimist about future of economy and companies.

(Nischal) #1196

A novice investor here. Found an interesting video which makes the case that we cannot compare Nifty P/E from two different times (without accounting for interest rates)
Instead suggests Mcap to GDP as a better indicator for market overvaluation

(Deepak Venkatesh) #1197


I have been following this ratio but I have been unable to compute it myself from the data which I have found. But a couple of sources give the following data. The important point to note is that the trend on this is also high (my hypothesis). Not that the PE levels are in 99th %ile these days. But from an index perspective all roads lead to Rome. Personally I am treading with caution.

Source is world bank

As of Jan 2018

As per MOSL


(Harsh04) #1198

In a country like India where GDP consists of the growth from unlisted and unorganised space, unless we know the figures of how much do the unlisted and listed space contribute to GDP respectively, it would be difficult to use M.Cap to GDP as a gauge to judge the expensiveness of the market.
Do such figures exist ?

While it works good in US, guess even buffett would have not relied on this ratio so much had he been actively investing in India.

(Sidz) #1199

PE Ratio steadily increasing without looking back since the last 20 trading sessions.

Contrarian, anyone?

(Roy) #1200

An excellent read…

(phreak) #1201

Commodity exports in FY18, has surpassed the FY14 highs in rupee terms after 4 years.

Saying nothing about the valuations but signs are there that are pointing to earnings recovery.

Q4, FY18 exports as well is at a all-time high. It is quite possible that the rupee is aiding the recovery, along with the commodity prices. This is just one small piece of the earnings puzzle since it concerns only commodities and only exports at that.


We believe that India’s price-to-equity multiple is at about 12 times normalised earnings versus the headline multiple of 18 times. - Morgan Stanley, Ridham Desai

(Sunday) #1203

Curious to know how it was calculated to be 12 ?


No explanation given