One way ticket to the moon: Nifty rising, but valuations not at dizzy heights

ET Intelligence Group: The ‘helicopter money’ showered by global central banks is driving a stock rally across the world, expanding the price-earnings (P/E) multiples of major indexes. At home, thanks to this phenomenon, the NSE Nifty is trading at 18 times the expected earnings of its component companies in the next 12 months, and 19.3 times that in fiscal 2018.



The valuation band of the Nifty is towards the top end of the historical trading band, and never in history has it traded at such a high premium to the average for a long stretch. However, on a relative basis, India’s valuation is only marginally premium to the historical average. The Nifty is trading at a 12.9 per cent premium to the MSCI Emerging Market compared with the average of 38.2 per cent for the past five years. The Indian market has gained 27 per cent in dollar terms so far in 2017, while the MSCI EM is up 23 per cent. The US Fed left its benchmark policy rate unchanged late on Wednesday.

The valuation expansion has propelled India to enter the club of select markets with a capitalisation of $2 trillion or more. India’s market is now the world’s ninth biggest by market capitalisation and is quickly closing the gap with Germany and Canada. A blend of foreign and domestic money has helped the local indices scale new highs. Foreign funds so far net invested more than $8.5 billion in 2017, the highest in two calendar years. Domestic funds on average have seen inflows of $1 billion a month during the period.