Price earning ratio of the Sensex and the Nifty 50 are at record high both on trailing and forward basis. The RBI warned of a bubble in equity valuations. Will there be a mean reversion any time soon?
I don’t like to look at just price earning multiple because earnings tend to be much more volatile than balance sheet-led valuation multiples. Also market is an aggregation of businesses and the market valuations may not reflect opportunities in certain segments. Nonetheless, PE valuations are definitely higher, around 15 per cent, compared to long-term average.