Stock markets slip into expensive territory once again

Bellwether index trading at P/E ratio of 22x; market cap to GDP at 81% is among highest in EMs

Propelled by better-than-expected corporate results in the October-December 2016 quarter despite demand shock from demonetisation and the ongoing rally in many global markets, Dalal Street, too, has seen a bull run.

The benchmark BSE Sensex index is now trading at 22x its trailing 12 months underlying earnings per share, which makes it overvalued on a historical basis. The Sensex price-earnings multiple had peaked at 19.8x before the market correction of early 2016.

In comparison, the five-year high valuation of the index is 23x reached in early July last year. The NSE Nifty 50 index is even more expensive at 23.4x