Stock Market Fall: Nifty 50's trailing P/E multiple halves from four years ago

The Nifty 50 index is down 16% from the record high levels of 26,277 it had it on September 27 last year. The fall has resulted in a contraction in the valuation multiples of the index as well.

Nifty 50’s trailing price-to-earnings ratio has more than halved over the last four years. Currently, Nifty 50’s price-to-earnings ratio on a trailing 12-month basis is at 19.7 times, down from the 40.3 times seen in March 2021, according to NSE data. During the same period, the price-to-book multiple has declined to 3.3 times from 4.2 times earlier.

Market veteran Raamdeo Agrawal of Motilal Oswal Financial Services also highlighted the contraction in multiples in an exclusive interaction with CNBC-TV18 on Monday, March 3. However, he added that they do not stop at averages and tend to overshoot them in both directions. “If the correction continues from here, it will mean the market is overshooting on the downside rather than just normalising,” he said.

Among the index constituents, auto stocks have seen the steepest decline, with Hero MotoCorp, Bajaj Auto, and Tata Motors each plunging around 40% since September last year.

“After four years of a relentless rally, a six-month downturn seems like a natural healthy correction rather than a structural collapse,” said Agrawal during the exclusive interaction to CNBC-TV18.

Unlike forward valuation metrics, the trailing price-to-earnings (P/E) ratio) measures a company’s current stock price relative to its earnings over the past 12 months, providing a retrospective view of valuation.

Meanwhile, foreign portfolio investors (FPIs) continue to offload Indian shares, citing rich valuations and slowing economic growth. On Friday (February 28), overseas investors sold another ₹12,000 crore worth of shares, bringing their total outflow from the Indian market to a staggering ₹1.2 lakh crore since the beginning of the year.

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