The 30-scrip BSE Sensex, when it closed at 8,889 on Saturday, was trading at a price earning (P/E) multiple of 17.44, compared to 13.72 two years ago when the Sensex was at 4,838. Nifty at 2,683.45 is trading at a P/E multiple of 15.84, compared to 13.45 two year ago.
Twenty-nine stocks are common in Sensex and Nifty baskets and 21 of these are now trading at a P/E of above 25. Higher price-earnings ratio is indicative of the fact that prices of these stocks have already discounted their future earnings.
The S&P CNX 500 at Saturday's level at 2,321.95 is just 6 points away from its all-time high reached on October 4. The CNX 500 stocks are now trading at a P/E multiple of 15.25, up from 11.64 P/E two years ago when CNX 500 was trading at 1223.10.
However, at least 22 CNX 500 companies are currently quoted at a P/E of over 50 and 143 companies at a P/E of 25-50. Among the other CNX 500 stocks, 74 companies are quoted at a P/E of 15-25, 90 at a P/E of 10-15 and 100 at a P/E of below 10.
Of the 30 Sensex stocks, Ranbaxy Laboratories has the highest P/E of 67.11 followed by Dr Reddy's Laboratories (P/E 42.53). Besides, 10 other Sensex stocks are trading at a P/E multiple of 25.
The CNX 500 companies achieved profits of Rs 32,800 crore (Rs 328 billion) in Q2 of this year, nearly 42 per cent higher than their collective net profit posted in Q2 of financial year 2004.
In fact, as many as 149 companies have more than doubled their net profit in the last two years. Ninety-five of them registered profits growth rate between 50 and 100 per cent and 50 of them posted profits growth rate between 25 and 50 per cent. Among the CNX 500 companies, 39 have turned around in the last two years.
Analysts say that the December quarter result will hold the key to the market even as the BSE Sensex is in sniffing distance of 9,000. On Saturday it crossed the 8,900 barrier to touch 8,912 in early trade.
"The future of the steel cycle is uncertain due to prices cuts and excess capacity and margins of technology companies are under pressure. Oil companies are plagued with subsidy burdens. However, the two-wheeler numbers are good," said an analyst.
Bajaj Auto's net profit has risen from Rs 182.66 crore (Rs 1.83 billion) in December 2004 to Rs 290.81 crore (Rs 2.91 billion) in September 2005.
Hero Honda's net profit in the comparable period rose from 218.93 crore (Rs 2.19 billion) to Rs 237.92 crore (Rs 2.38 billion). However, Bajaj Auto and Hero Honda stocks have priced in the earnings. Bajaj Auto has nearly jumped 120 per cent since January 2005 and Hero Honda by 55 per cent.
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