Nifty’s 10,000 Mark Pushes Valuations Past The 25 Mark

The Nifty 50 has breached the 10,000 mark pushing the valuations of the market beyond the 25-times mark. At this level, the bellwether's valuations is trading in the loftier valuation zone where the prices seem to suggest that the markets are overvalued by historical standards.

The Nifty’s historical average valuation has been 17-18 times earnings. A back of the envelope calculation suggests that the Nifty is at 38 percent higher levels than its historical valuations.

To be sure, the Nifty 50 breached surged past the 25 times mark back in December 2007, when the stock markets were caught in an irrational exuberance in the global markets

PE is price-earning which measures the price that investors are paying for a unit of earnings.

But the bubble mark that ultimately broke the bulls was a PE level of 28.3 levels. That was the turnaround point. The markets then hit its worst ever bear phase that worsened due to the sub-prime crisis in the US that froze the fixed income markets globally.

If you are looking at the valuations, then the markets are suggesting a heated zone. Going by the recent history, the markets will still have to rise more than 10 percent for us to hit the overvaluation mark. That is to say that we will have to cross the 11,000 mark where the PE levels will tend to go to 28 times.

Of course, the current earnings season is not over yet, and that will tend to get the PE lower. But the writing is on the wall, we are in the not-so-safe zone in market valuations.