Published: 07th Aug 2024
By: Value Research
Our analysis shows market valuations have become uncomfortably inflated. The median P/E of all listed non-BFSI companies is presently 36, against their usual level of around 19.
Nearly 35% of all large, mid and small-cap companies are trading above a P/E of 50. In contrast, only 16% of them traded at these levels in 2015.
Since euphoria is running wild in the market, current high premiums demand high earnings growth to justify valuations. Can companies live up to these expectations? We think not.
A company trading at a P/E of 50 will have to grow its earnings 20% annually for 10 years to match Sensex’s 10-year annualised return (12%), meaning a 5-fold earnings growth in 10 years!
But as it turns out, over half of all large, mid and small-cap companies have not managed to compound their earnings by even 10% annually in the last 10 years.
Sustaining extreme earnings multiples is hard. Our story has 4 charts that demonstrate this. You will also find how those with inflated multiples 5 years ago fare today. Grab the latest Wealth Insight from the link below to read the story.