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These 16 companies on an average trade at more than 50 times their forward earnings, according to BQ Prime’s analysis. They have a combined 28% weight on Nifty 50 and account for 12% of the index’s earnings.
The remaining 34 have an average PE of around 14.6 times.
Of the 16 stocks with the priciest valuations, six are from the consumer goods and financial services sectors each.
The Nifty 50 closed on Friday at 17,094, trading at 17.7 times the estimated earnings for FY24 and an earnings per share of 973, based on consensus profits forecasts from analysts tracked by Bloomberg.
According to BQ Prime analysis:
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An downward revision of 10% on the expected future earnings of the 16 stocks, coupled with PE de-rating, could bring the Nifty 50 Index alone by 1,000 points.
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If the consolidated Nifty 50 earnings fall by 10%, the index will correct by 1,585 points, taking it to 15,508 levels.
Since an earnings slowdown will not hurt uniformly, stocks with higher PE multiple are at a higher risk of a faster de-rating in case they miss forecasts. Eicher Motors Ltd. is one such example. Following an earnings slowdown, its forward PE multiple has fallen from 52 times for FY21 to 28 times for FY24.
What that means is that pricey stocks will have a higher impact on the Nifty earnings and market cap if they fall short of expectations.
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Image and article originally from www.bqprime.com. Read the original article here.