Why are Nifty Valuations Up?

After a gap of three years, the Nifty price to earnings is above the median level level of 18.3. We tell you why


The Nifty is more in the news these days because it is at its all time high. This calls for an answer on its valuation? To answer that question, we mapped the price to earnings of the Nifty index with the axis based on its all time median level of 18.3. The area above the median axis shows the relatively over valued Nifty and the area below shows the undervalued Nifty. After the sudden surge in the Nifty level; the valuation has just crossed its median price to earnings after three years.

The point to notice is that despite the all time high level, the price to earnings is much below what it was in during the highs of end 2007 and 2010. Does it mean that investors should avoid investing? The answer lies in the earnings growth of the underlying stocks which bring down the PE level when they grow more than the current PE level.

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