Mid cap and small cap index valuations – too high?

The BSE Midcap and BSE Smallcap index seem to be on fire. Strangely, in a scenario where there seems to be a growth slowdown. I have created a chart for you in this article which shows the price to earning ratios of these two indices with respect to that of the BSE 30 Sensex.

Update: See latest chart as of March 2013 in this article on midcap and smallcap index valuations in India.

A couple of months back I had written about this phenomenon in this article. As I mentioned earlier, this rise of valuations of the mid cap and small cap indices over the Sensex, which is made up of large-cap stocks, was not even seen in the wild run-up of stocks in the 2006-08 period.

The scary part is that the two indices have surged even higher as the Sensex rose by around 9% in the last couple of months. As of 15 October 2012, the BSE Sensex has a price to earning (P/E) ratio of 17.3, BSE Midcap is at 22.1, and BSE Smallcap is at 22.5.

Interactive chart for Sensex, BSE Midcap and BSE Smallcap price to earning ratios

made with ChartBoot


I feel that it calls for great caution in mid cap and small cap stocks. It will pay to re-examine mid cap and small cap stocks that you are holding and see whether they are trading at excess valuations.

You might not see the chart properly if you have blocked Javascript or if you are on Internet Explorer. This chart should show properly on Chrome or Firefox.

For those who are may have trouble seeing the interactive chart, here is a static chart.

Overvaluation - Mid cap and small cap price to earning ratios

I constantly try to make your experience at Capital Orbit better. Making sure that I have a working interactive chart took a fair amount of tinkering with various tools and options. I enjoy creating and sharing information with investors in India.

If you enjoyed reading this article and found the interactive chart useful, do share it with friends!

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