Sensex trailing P/E ratio sinks to pandemic low

Market uncertainty, fatigue regarding near-term outlook behind fall

- KRISHNA KANT

The persistent selloff in Indian equities has driven valuations to their lowest in over eight years.

The BSE Sensex's trailing price-to-earnings (P/E) ratio dropped to 20.4x on Friday, marking its lowest since May 2020 — excluding during the pandemic-induced sell-off — when it touched 19.5x due to concerns over the economy and corporate earnings.

The current P/E is only marginally higher than the July 2016 levels, when it stood at 20.3x.

The trailing P/E ratio is a valuation metric that compares a company's current stock price to its earnings over the previous 12 months. It is calculated by dividing the current stock price by the earnings per share for the previous year.

Analysts are attributing this decline to the lingering uncertainty in the markets and fatigue regarding the near-term outlook.

At the current level, the Sensex is trading at a 14 per cent discount to its 10-year moving average of 23.6x, the largest such gap since the 2008 global financial crisis, when it peaked at a 34 per cent discount.