As of 10:33 AM on March 10, 2025, the BSE Sensex was trading 245 points higher above the 74,570 level. Despite the positive movement, the valuation of the index remains subdued, with its price-to-earnings (PE) ratio at 20.69x as of March 7, 2025. This is a notable drop from its September 26, 2024 high of 25.20x.
The primary reason behind this decline has been consistent selling by foreign institutional investors (FIIs), coupled with uncertainties surrounding trade wars, leading to a correction from higher levels.
As of March 10, 2025, the BSE Sensex PE ratio stands at 20.69x, significantly lower than the Dow Jones Industrial Average (DJIA) PE ratio of 25.64x. This translates to a 19% discount, making the valuation gap between the 2 indices.
At current levels, the Sensex is trading at a 14% discount to its 10-year moving average of 23.6x. This is the largest such discount since the 2008 global financial crisis when the index traded at a 34% discount to its long-term average.
A similar valuation gap was seen during the dot-com bubble burst in 2000, after which the index continued to trade at a discount to its 10-year average for nearly three years (October 2000 – September 2003).
Over the past 25 years, the Sensex has typically traded at a 6% premium to its 10-year moving average. However, whenever the index breached its long-term average, it signalled a potential market bottom, leading to a rebound.
Notable instances where the 10-year moving average coincided with market recoveries include:
This historical pattern indicates that while markets undergo valuation corrections, they often recover when trading below their long-term average.
Despite the discount in valuation, the BSE Sensex remains cheaper compared to the US benchmark index Dow Jones, which is currently trading at a PE ratio of 25.64x.
One of the key reasons for this valuation gap is the strong corporate earnings growth in the US. In the October-December 2024-25 (FY25) quarter, corporate earnings in the US surged 16% year-on-year, whereas India recorded a comparatively lower 6% growth.
Looking ahead:
The relative slowdown in earnings growth in India has resulted in a shift in capital allocation by foreign portfolio investors (FPIs). Institutional investors are increasingly favouring markets with stronger growth prospects, such as the US.
This shift in capital allocation is one of the reasons behind the Sensex trading at a discount to the Dow Jones, despite India’s long-term growth potential.
The BSE Sensex trading at a significant discount to its long-term average is a rare occurrence, with past trends indicating that such phases have typically preceded a market rebound. However, factors such as corporate earnings growth and global capital flows continue to influence valuations, making it essential to observe how these trends unfold in the coming months.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
Published on: Mar 10, 2025, 3:17 PM IST
Team Angel One
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