Historically India's benchmark Index, SENSEX, has bottomed out at a PE valuation of 10 to 12 times. At the current index level of around 16,500 and an estimated EPS of 1250 for the financial year 2013, the index is trading at a PE multiple of around 13 times FY 13 earnings. Above that considering the appreciation of dollar against rupee, the valuation in dollar terms is already around 11 times if we assume an average dollar rate of 48 against INR.
History shows that in bear phases, stocks are hammered irrespective of their performance. And, when investors exit in masses, even quality gets battered. That’s what seems to be happening at this point in time. The price/book valuations have also fallen to 39-month lows, says Nick Paulson-Ellis, country head of Espirito Santo Securities.
Hence though we have all gloomy situations around us, there is high possibility that we may start the bottoming out process somewhere around the current levels and the stage is set for a much bigger bull market going ahead.