The Nifty 500 Price to Earnings Ratio is something we get asked about all the time. And here it is, on a weekend where people suddenly believe there might be a change because ooh, the US S&P fell more than 2%. But we’ve been harping about it for ages.
The P/E ratio is usually something that builds in expectations of earnings growth. It’s possible that earnings will suddenly grow, but these high expectations haven’t materialized in actual earnings growth since October 2014.
Here is the current level:
At more than 28, it’s the highest in over 16 years, and the earnings growth is at -4%.
And if you think “now” is a bad time and that we should actually look at things over time, this is how the Nifty 500 earnings have grown, with a 10 year average:
At less than 6% average earnings growth in five years, and a current P/E of 28, this is the most divergent set of things we’ve seen. The market is at an all time high (on the Nifty 500) which earnings growth is at an all time low.
There’s probably no point being bearish in a market that only seems to go up. But it’s not driven by earnings. It’s driven by liquidity and madness. And strangely, the drop in the US came only because of the fear that free money will stop flowing. Even Japan and the ECB seem to be rethinking this entire “we will throw more money at this problem” approach.