In today’s article I have created a chart that contains the price to earnings (P/E) ratios for large cap, mid cap, small cap valuations. I have used the BSE 30 Sensex, BSE Midcap and BSE Smallcap indices respectively.
In a past article on mid cap and small cap valuations, one could see that mid and small cap valuations had gone way higher than average levels. In fact, they had overtaken large cap valuations which is quite remarkable. I had spoken of the caution needed in mid cap and small cap stocks.
Of course, if you have studied individual stocks well enough and invested with a margin of safety you are guarded. Still, I like to look at aggregate values and also see whether there is sanity in the market at an overall level.
Interactive chart for Sensex, BSE Midcap and BSE Smallcap price to earning ratios
Here is the updated chart as of 8 March 2013. The correction in valuations for the mid cap and small cap indices has finally played out.
For those who are may have trouble seeing the interactive chart, here is a static chart.
Large cap, mid cap and small cap valuation – a historical perspective
It’s useful to compare current P/E ratios with average levels seen over the past 7 odd years. The range is fair as it covers one down cycle and up cycle. Though, I should say that this up cycle was furious because of central bank interventions all over the world and by the RBI too.
|Index||Average||As on 8 March 2013|
Data range – 20 Mar 2006
Why, this date you may ask? The BSE gives P/E data for BSE Smallcap and BSE Midcap from 20 Mar 2006 onwards.
There is still froth in small-caps at an aggregate index level. Take care! On the other hand the large cap index is below long-term average levels.
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