Nifty 50 Surpasses Global Indices, Becomes Second Most Expensive After Nasdaq

Indian stocks are facing potential challenges in the near term as their valuations move from being stretched to overly extended, reported The Times Of India.

This comes after a robust 20 per cent return in 2023.

As reported by Economic Times, Bloomberg data shows that the one-year forward price-earnings (P/E) multiple for the Nifty 50, a key market indicator, is now at a two-year high of 22.

This represents a 40 per cent premium compared to the usual average valuation of 15.7, indicating an unusual situation.

A year ago, this premium was 19 per cent.

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As a result of this change the Nifty 50 is now considered the second-most expensive index globally, trailing only the Nasdaq.

It's important to note that this high valuation is unusual for many Nifty 50 companies, especially those in consumer, IT and industrials sectors, which typically have more reasonable valuations.

Moreover, a large portion of Nifty companies (98 per cent) and all S&P BSE Sensex companies are trading above their respective 200-day moving averages, indicating a potential risk as valuations are high.

While domestic companies are estimated to grow by 14-18 per cent, emerging markets like South Korea, Taiwan, and South Africa are predicted to outperform in 2024.

The Nifty's P/E multiple, which measures how much investors are willing to pay for each unit of earnings, has now reached a level not seen in two years.

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