For a long time, Indian stock markets have been overvalued, as seen by higher PE (Price earning) multiples for the BSE Sensex. The PE multiple is the ratio of a stock’s price to its profits per share and the higher the figure, the greater the future expectation (or excitement) component over a stock’s current performance. While the PE multiple values remain high, it has decreased marginally from even greater levels in 2020.
This could be due to a dramatic increase in business earnings during the pandemic, as well as the belief that the market has already hit very high levels and that there will be no more short-term gains shortly. Over the last two years, there has been a significant increase in the number of retail investors, owing to the great returns that equities have provided. However, given the market’s poor performance over the last six months, retail investors may be less eager to trade as frequently as before.
Markets are expected to shift from “early-cycle” to “mid-cycle” in 2022. India’s macroeconomic fundamentals continue to be solid. As the recovery broadens, economic growth is likely to remain considerably above its long-term trend, with the possibility of further upgrades to consensus GDP growth for the year ending March 2023.