Prajna Capital - An Investment Guide

Take A Leaf Out Of Historical Happenings, There Are Returns To Be Made THE long-term trend is pointing towards under valuation of the Indian equity market. The market, as measured by Price-to-earning ratio ( PE ) of the Sensex has just about pierced the long-term trend line. At the current valuation, it is quoting at a one-year forward of 16, little less than the earnings growth rate that Sensex companies have managed since 1991. If the theory of market returns chasing earnings growth is to be believed, this is just about time for accumulation for those looking at the longer haul. Since 1991, while the Sensex has grown at CAGR of 15.5%, its earnings grew at a rapid 16.6% per annum. In the past two years, the market went up partially on the back of ‘ PE expansion’ . It meant PE of the Sensex was getting priced higher than usual, since the market expected faster growth in earnings. But with the current correction, while valuations have been ‘cleansed’ of such expectations, there are pro...