Nearly 50% of Nifty 500 index stocks above 40× P/E, outpacing most world indices

Post-Covid-19, India’s equity benchmarks are increasingly tilted toward richly valued stocks, a trend that sets the country apart from major global indices even as lofty valuations carry heightened downside risk.

Currently in the Nifty 500, nearly 235 companies—about 47 percent of the index—are trading at trailing 12-month price-to-earnings (P/E) multiples above 40 times. Before the pandemic, only around 16 percent or 80 stocks breached that threshold.

By contrast, China’s CSI 300 Index has nearly 25 percent of its constituents trading above 40 times earnings, while Indonesia’s Jakarta Composite stands at 14 percent, Taiwan’s Weighted Index at 16 percent, Germany’s DAX at 15 percent, the US S&P 500 at 14 percent, France’s CAC 40 at 13 percent, and South Korea’s Kospi around 10 percent.

Valuations in several other markets are far less stretched: South Africa’s Johannesburg All Share and Thailand’s SET each report roughly 5 percent, the Philippines’ PSEi at 3 percent, Brazil’s Bovespa at 1 percent, Europe’s Stoxx 600 at 10 percent, and Japan’s Topix at around 8 percent.

Market strategists warn that such high multiples often price in years of future growth. Even a modest earnings miss, a shift in sentiment, or tighter monetary conditions can trigger sharp corrections. Elevated valuations also cap upside potential, leaving investors vulnerable to volatility and opportunity cost should lower-priced peers outperform.

Not all analysts view lofty P/E ratios as a red flag. Independent market observer Deepak Jasani argues that index inclusion depends on multiple factors beyond valuation, including free float, liquidity, sector representation, investor interest etc. “Expensive does not automatically disqualify a stock from an index,” he notes.

Within the Nifty 500 index, Devyani International tops the list with a staggering trailing P/E above 2,200 times, followed by Fertilisers & Chemicals Travancore at roughly 1,500 times and Eternal at about 970 times. Other highly rated names include Westlife Foodworld, FSN E-Commerce Ventures, Sapphire Foods India, MRPL, PTC Industries, Piramal Pharma and PB Fintech among others.

Aditya Kondawar, Partner and Vice-President at Complete Circle Capital, points out that while half of the Nifty 500 trades at P/E multiples over 40 times, about 28 percent of those companies are delivering earnings-per-share (EPS) growth near 50 percent—translating to a price-earnings-growth (PEG) ratio of around 1, often considered fair. Nearly 34 percent, or 170 stocks, are reporting EPS growth of 40 percent or more.

Few analysts suggest despite persistent valuation concerns, fears of a broad correction have eased as domestic institutions and mutual funds continue to absorb supply.

Rajesh Palvia of Axis Securities highlights that mutual funds are holding cash reserves of nearly Rs 1.8 lakh crore, providing a buffer against volatility even in the absence of strong foreign institutional inflows. High-net-worth individuals, family offices and other large domestic investors remain active, reinforcing demand across Indian equities, Palvia adds.