Indian equities have undergone a sharp valuation reset since their September highs, with widespread market cap erosion triggering significant de-rating of stocks. The NSE 500, Nifty 50, and Sensex 30 indices have seen steep declines, wiping out investor wealth and dragging price-to-earnings (P/E) ratios lower across the board.
In the Nifty 50, 23 companies have lost over 20 percent from their highs, including one that has plunged over 40 percent. The Sensex 30 paints a similar picture, with over half of its constituents down more than 10 percent.
P/E compression: from exorbitant valuations to reality check
As m-cap shrinks, earnings multiples have compressed dramatically. The NSE 500, which previously had 106 companies trading at a P/E above 100, now has just 36 in that range. Similarly, the number of stocks trading in the 50-100 P/E range has dropped from 169 to 117, signaling a revaluation of high-growth, momentum-driven stocks.
The correction follows a period of market exuberance that peaked in September 2024. Concerns over high valuations, elevated interest rates, back-to-back tepid quarterly results, and global economic uncertainty have weighed on sentiment. The sell-off intensified as investors rotated out of expensive stocks, leading to a sharp re-pricing of equities.
With market valuations now looking more reasonable, the question remains—is this the bottom, or is there more pain ahead.
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