Analysts feel the market is not overheated yet despite its sharp rise in the past one year
Between October 2016 and September 2017, the period for which the BT 500 calculations have been done, the Sensex went up by a staggering 3,040 points – a gain of 10.8 per cent. The Nifty rose 12 per cent, zooming from 8,738 to 9,788. The average market capitalisation of the combined BT 500 companies rose to ₹113 lakh crore, from ₹94 lakh crore in the year-ago period. Since October 1, the markets have risen further. On November 21, the Sensex closed at 33,478 and the Nifty at 10,326.
Ask analysts at Dalal Street whether equity markets have moved up too fast and too high and you will get contrasting answers. “We are in the middle of a multi-year bull run,” says one. Another says that it is time to be a bit cautious while investing further. However, most are not willing to stick their necks out and make firm predictions.
What does the price-to-equity (PE) ratio – a barometer of how heated or depressed the market is — indicates? The BT 500 study showed that of the top 500 companies, at least 345 were trading at above their five-year median PE multiples. Does this show the market is overheated and most stocks are overvalued? Or is there still headroom for the market to rise?
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