Indian Equities Enter ‘High Optimism Zone’ As Fear Slumps, P/E Ratio Touches 20x: ICICI Securities

ICICI Securities Report

Nifty 50 is entering the ‘high optimism zone’ as the one-year forward price/equity multiple touches 20 times implying that equities currently have an ‘earnings yield’ of 5% versus ~7.2% for Government bonds.

Going by historical performance over the past two decades, the one-year forward average and median returns for the Nifty 50 stand at 3% and 1% respectively whenever it has traded in the 20 times-22 times P/E multiple range.

This is against the 12% expected annual return which Indian equities have produced over the long term (10-year rolling returns) since 1990.

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