DEFYING uncertainty and widespread scepticism, Indian equities posted handsome gains on fresh buying by FIIs,
retail investors and traders. The BSE Sensex made more history when it crossed 15,000, contrary to the popular perception that the Indian stock market is overheated and that the key indices are overvalued.However, unlike the move from 13,000 to 14,000, which took only 26 days, it has taken 146 days for the index to move from 14,000 to
15,000 – an increase of 7 per cent. This witnessed a healthy correction in February.During the rise from 10,000 to 15,000, two thirds of Sensex stocks have actually seen adip in their trailing P-E ratios. Only Reliance and SBI have seen a re-rating of the sorts with the P-E of Reliance going up to 21.9 from 11.3 and that of SBI to 18 from 10.
That this time there is no euphoria is another sign that the markets have matured. The price to earning (PE) multiple when Sensex crossed 14,000 in December was a little overIt is a little over 21 now. Moreover, share prices are more a reflection of future earnings, not past ones. This makes forward PE more important than the trailing one. Most research houses estimate the forward PE for
