Overall, the market appears to be hot today. As we have seen earlier, most of the investor’s returns in the market from 2013-16 was made through multiple expansion (~80-90% of the returns came from multiple expansion & balance came from Net income growth). With this point in mind, if we invest when the multiples are at their peak, then the probability of earning multi-bagger returns reduces significantly going forward. Definitely not the right time for a value investor. Retail Investors, please move wisely as one is likely to be exposed to momentum-based & sentiments-driven opportunities which might lead to trouble in the future.
India definitely remains a solid growth story but given the current level of entry valuations, the market definitely looks expensive. Grab the opportunity when the markets take a dip!
Apologies for too many charts and data but I love to prove my point which is backed by data 🙂
Sensex Valuations – Almost hitting the roof; not backed by earnings growth
-Trailing P/E – 30% higher than long term median (17x) & 10% lower than life time high (26x)
Value vs Price mismatch?
Does it seem fair to pay 23x trailing P/E multiple (price) for 13% ROE (value)?
70% of the BSE 500 stocks are trading >50x trailing P/E
Street’s consensus of 1 yr forward P/E adjusts premium in valuation
Current multiple factoring ~17-18% EPS growth for the next 2 years
Story is not very different in case of Mid Caps
Current trailing p/e multiple of 25x is trading at 25% premium to long term average of 20x
Source: Bloomberg, Ambit Capital