Nearly 60% of Nifty 500 Companies Trading Above Long-Term Valuations

Indian equity markets extended their winning run for the sixth straight session on Wednesday, supported by steady liquidity inflows and strong macroeconomic signals. However, beneath the optimism, analysts are voicing concerns that stock valuations have reached stretched levels, raising questions about the rally’s sustainability.

Valuations at Elevated Levels

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Data shows that nearly 60% of companies in the Nifty 500 index are currently trading at forward price-to-earnings (P/E) multiples higher than their 10-year average. The Nifty 500 itself is valued at around 21.92 times one-year forward earnings, far above its long-term average around 19.6.

An industry expert cautioned that valuations remain a critical risk. Expensive is never fine. Even before this rally, many stocks were overpriced. I am not comfortable with markets at these levels, he noted.

Select Stocks Trading at Extreme Premiums

Some individual counters stand out for their excessive valuations. Patanjali Foods shares price, for instance, is trading at a forward P/E of around 120.74 times, compared with its 10-year average of 19. Similarly, Devyani International and Eternal are commanding multiples of 192 times and 198 times, respectively—well above their historical averages of 109 and 122 times. Other richly valued stocks include Max Financial, Sapphire Foods, CG Power & Industrial, Laurus Labs and Aster DM Healthcare.

Analysts warn that these elevated multiples suggest earnings growth expectations are already priced in, which may leave equities vulnerable if those earnings fail to materialise.

Liquidity Driving the Market Rally

Despite the valuation concerns, equities continue to find support from strong macroeconomic fundamentals. India’s GDP growth remains robust, GST collections are healthy, and recent tax cuts have further boosted sentiment. Additionally, the renewed dialogue between India and the U.S. on trade has been viewed positively by investors.

Independent market analysts agreed that valuations look stretched but emphasised the dominance of liquidity in driving momentum. From a long-term perspective, stocks are indeed pricey. But if earnings show improvement in Q2 or there are signs of a better Q3, that would be sufficient to sustain markets. Liquidity is driving this momentum, and when liquidity speaks, valuations often take a back seat, they explained.

Domestic Factors Providing Support

Experts also highlight that India’s largely domestic-focused economy offers a buffer against global risks.

Policy measures such as:

• Income tax relief
• GST rate cuts
• Expected implementation of the next pay commission for central government employees are likely to lift disposable incomes and spur consumption in the months ahead.

Conclusion

Analysts warn that liquidity, rather than fundamentals, is driving the surge as Indian stocks continue their upward trajectory. The market's sustainability will be determined by whether corporate profits growth can support present levels, given that valuations are trading much above historical averages. The possibility of a correction is still very much open till then.