P/E ratio of BSE scrips dips to 17.24 times

The market-wide weighted price to earnings (P/E) multiple, which soared to an unsustainable level of over 28.1 when the Sensex hit its all-time high of 21,282 on January 8, has come down to 19.19, with the benchmark index hovering around 15k levels.

The weighted P/E of the BSE stocks has also declined from 27.4 to 17.24. This is largely on account of the 30 per cent plus correction in the market prices between January 8 and on Monday. In simple terms, an investor who was willing to pay Rs 28 for a rupee earned per share on January 8 is now willing to pay only Rs 19 for the same stock.

This has happened largely due to the global meltdown following the sub-prime crisis and projected slowdown in the US economy in the first two quarters of CY08.

The current weighted P/E multiple has been compiled by taking into account the net profits of 2,060 companies for the trailing 12 months (TTM) ended December 2007.

The P/E as on January 8 was based on the TTM net profit ended September 2007. The weighted P/E is the total market capitalisation of 2,060 companies divided by their net profit in the latest TTM period.

If one expects the corporate profits to grow by 15-20 per cent in FY09, the Sensex’s forward P/E at the current value is 17-17.8 times and the market wide P/E is 15.5-16 times.

The P/E of A group stocks has fallen from 28.3 to 19, the stocks of B group and S group have reacted sharply to the market meltdown with the P/E of these groups plunging from 23.6 times on January 8 to the current 15.

While the marketwise P/E multiples have come down, as many as 650 stocks are trading above their average P/Es. The P/Es for 1,463 stocks have been relatively cheaper, with multiples of 10 and below.

Among the Sensex stocks, Larsen & Toubro is trading at a P/E of 41.4 (down from 71 on January 8). Reliance Communication is not going cheap either, as it is trading at a P/E of 36.2 times.

Though HDFC, HDFC Bank, DLF, BHEL and Reliance Energy have declined by 25-50 per cent from their January 8 highs, they are still trading at P/E multiples over 25-30 times.