State of Indian Stock Markets – August 2019

This is the August 2019 update for the State of Indian Stock Markets. This update includes the historical analysis (since 1999, i.e. about 20+ years) and Heat Maps for the key ratios like P/EP/BV ratios and Dividend Yield for Nifty50 and Nifty500.

A new section on the last 12 month’s index movements and PE dynamics during the said period has been added recently. This analysis will be done on a rolling basis. That is, it will include monthly analysis (for each of the last 12 months) as well as analysis for specific aggregate periods like the last 1 month, last 3 months and last 6 months. This is being done to highlight (if any) the changes which become evident in market sentiment from a data perspective.

Before we move forward, please remember a few things:

  • The numbers shown in the analysis and tables below are averages of P/E, P/BV and Dividend Yield in each month (unless otherwise stated). Neither Nifty50 heat maps nor Nifty500 heat maps show the maximum or the minimum values for each month.
  • National Stock Exchange (NSE) publishes index level PE ratios based on standalone numbers and not consolidated numbers. It would be ideal to use consolidated numbers as many Nifty companies now have subsidiaries that have a significant impact on overall earning numbers. This has a much larger effect now than it would have had in yesteryears. And more importantly, this will matter more and more going forward. But NSE (as of now) continues to publish Nifty PE using its own set of criteria and decisions and sticks with standalone figures.
  • It is possible that at times, some of the sectors in index get far more weight than is prudent to give. And its also possible that at the very same time, their earnings may be unexpectedly high or low. If and when this happens, the index level earnings will be impacted accordingly due to higher-than-necessary sector weight – which in turn may skew the PE data at that point of time.
  • Similar to the point discussed above, it is also possible that at times, some (or few) individual index constituents might have high earning or market cap at an individual level(s) which might, to some extent, skew the PE data at the index level as well. The possibility of this happening is rare but still non-zero as the period under consideration is generally long term here.
  • Caution – Never make any investment decision based on just one or two ‘average’ indicators (here’s Why?) At most, treat these heat maps as broad indicators of market sentiments and a reference of market’s historical mood swings.

So here are the Nifty 50 Heat Maps…

Historical P/E Ratios – Nifty 50 (Monthly Average)

Historical Nifty PE 2019 August

P/E Ratio (on the last day of August 2019): 27.27

And if we were to look at the movement of Nifty’s PE in the last 12 months, then here is a graph depicting the same:

Nifty 12 Month PE Trend 2019 August

Now, let’s have a more detailed look at how the last 12 months have panned out when it comes to Nifty movements and its implications (alongwith earnings’) on PE ratio of the index.

I suggest you spend some time on the table below (which shows month-wise data cuts) to gauge its importance in highlighting the trends in the last 1 year:

Nifty Price PE Trends 12 Months Sep 18 Aug 2019

Now from month-wise depiction, let’s have a look at more aggregate time periods in the last few months. Let’s analyse the above-highlighted data points when period under consideration in aggregated to 3-months and 6 months (plus a 1-previous month for more comparative analysis):

Nifty Price PE 1 3 6 Month Trends 2019 August

Now with PE of Nifty50 analysed in various cuts, let’s move ahead to the analysis of P/BV and Dividend Yields of the Nifty50

Historical P/BV Ratios – Nifty 50

Historical Nifty Book Value 2019 August

P/BV Ratio (on the last day of August 2019): 3.35

Historical Dividend Yield – Nifty 50

Historical Nifty Dividend Yield 2019 August

Dividend Yield (on the last day of August 2019): 1.39%

That was all about Nifty50 – the more popular bellwether index of India.

Now let’s do a historical analysis of the larger space, i.e. Nifty500 companies…

As the name suggests, Nifty500 is made up of top 500 companies which represent about 96.1% of the free-float market capitalization of the stocks listed on NSE (March 2019). Nifty50, on the other hand, is an index of 50 of the largest and most frequently traded stocks on NSE. These represent about 66.8% of the free-float market capitalization of the NSE listed stocks (March 2019).

So obviously, Nifty500 is a much broader index than Nifty50.

So let’s see…

Historical P/E Ratios – Nifty 500

Historical Nifty 500 PE 2019 August

P/E Ratio (on the last day of August 2019): 29.19

Historical P/BV Ratios – Nifty 500

Historical Nifty 500 Book Value 2019 August

P/BV Ratio (on the last day of August 2019): 3.04

Historical Dividend Yield – Nifty 500

Historical Nifty 500 Dividend Yield 2019 August

Dividend Yield (on the last day of August 2019): 1.33%

You can read the previous update here. The State of Markets section has also been updated with new Nifty heat maps (link).

For a detailed analysis of how much return you can expect depending on when the actual investments have been made (at various P/E, P/BV and Dividend Yield levels), it is strongly suggested that this article may be read and referred to regularly:

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