Stock market outlook: The recent decline in the major benchmark index Sensex and Nifty has reduced their 12 Month (TTM) basis measured with price to earnings (PE) ratio from 5 and 10 years average. Sensex and Nifty are running 11 and 12 percent below their all time high respectively.
Sensex is currently trading at TTM PE of 22.2x at the current level, while its 5 and 10 years averages are 25.4x and 27.5x respectively. On the other hand, the Nifty 50 is currently trading at TTM PE of 21.7x. This is much lower than the 5 and 10 -year average TTM PE 23.9x and 26.7x respectively.
Market experts say that the decline in the major benchmark index Sensex and Nifty’s PE was largely due to the weak of the December 2024 quarter (Q3 Results).
UR Bhat, co-founder and director and director of Alphaniti Fintech, believes that markets will fall further in the coming weeks. This is because yet the cautious approaches on the dull results of the companies have not been completely ignored. Global factor is also playing a role, which needs a strict monitoring.
He said, “There is still some further decline in the market. So far, the comments of companies announcing Q3-FY25 results have been cautious. There is also control over the sentiment with the expectation of low increase in income in the coming quarters. There is also a need to monitor the government bond yield. I am not seeing any much enthusiasm among investors yet.
Bhat said, “It would be better for investors to stay away from the market for at least one quarter. Wait what the budget brings and how corporate results take shape.
Midcap and smallcap stocks also impact
The situation is not much different in the mid-cap and small-cap segment. The Nifty Midcap 100 and Nifty Smallcap 100 index are trading slightly less than their 5-year-old and 10-year PE multiple at 37.1x and 26.6X PE respectively. The decline in both these segments has been faster than their large-cap competitors.
According to NSE data, the Nifty Midcap 100 index is about 13 percent below its high level at 53,146 levels. At the same time, the Nifty Smallcap 100 index is 15.5 percent below its high at 16,728 levels.
Analysts of Nuwama Institutional Equities say that investors should be prepared for long-term fluctuations in these two sectors. He said, “The current decline is like the market of recession. Relief in softened American Fed and domestic interest rates is important for the speed in midcap and small-cap segment. ”
Nuwama Equities said in his note, “Despite the recent correction, the Standard Deaviation (SD) of the valuation is expensive in the two segments of the market. This indicates further further decline. However, corresponding policies from the government can prevent this decline.