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Market valuations have risen considerably over the past few quarters both in the frontline indices like Sensex or Nifty and in the midcap/ smallcap indices. The current equity market valuations are factoring in a robust recovery in earnings growth. Retail investors are worried whether the valuations would sustain at current levels. This depends on how soon and robust the earnings recovery is and how sustainable it will be.
While optically, the markets may seem to be expensive going by historical standards, bulls say that price-to-earnings (P/E) multiples are inversely correlated with the cost of capital.
Further, markets typically top out
