Markets looking good for long-term investors

India’s valuation premium is trading 20.7 per cent above its ten-year average after the Sensex touched a record high on Thursday. The benchmark index is trading at 19.10 times its one-year forward earnings. But the current price-earnings ratio is lower than its P/E multiple of 19.2-19.5 times during January 2018 and September 2018.

Although the current P/E reading suggests that the market is expensive, other valuation parameters are comforting to investors. The price-to-book value of the Sensex stands at 2.94 times, just 2 per cent higher than the long-term average of 2.88. The peak price-to-book multiple reached 3.35 times in January 2018. It has been gradually moderating since then.

The reading of the market capitalisation to GDP ratio — a key parameter for the long-only foreign and domestic funds — has been reassuring, too. It is trading at 78.5 per cent, a percentage point higher than its 10-year average. The market capitalisation to GDP ratio reached 146 per cent in 2007.


While it may not be an ideal scenario for short-term investors, for the long-term investors it has never been better.