Nifty P/E up 20%; discretionary, energy stocks see maximum expansion

The benchmark Nifty is currently up 13 per cent on a year-to-date basis. However, the 12-month forward price-to-earnings (P/E) multiples for the index has shot up nearly 20 per cent during the same period. In other words, the rise in the stocks has been much higher than the 2021 earnings growth estimates for the underlying stocks. Within the market, the discretionary, energy, and information technology (IT) sectors have seen the maximum expansion in their P/E multiples, shows an analysis done by Credit Suisse. On the other hand, utilities and public sector banks are the two only pockets to see contraction in P/E. India’s P/E premium to the world is at 15 per cent, while that to its emerging market peers is at 54 times.

“Indian equities are no longer cheap, and only a short distance away from being the most expensive they have ever been,” says the brokerage. Further upside in the market from current levels will have to be supported by earnings growth as “any reasonable investment thesis must build in lower or at best unchanged P/E going forward.”