Investors need to be wary of overpaying as stock returns are mediocre

The Nifty50 index’s price-to-earnings (P/E) ratio is currently at an all-time high of 31.2x its trailing 12-month earnings per share. This is higher than its 10-year (22x) and 20-year (around 20x) averages. Retail investors need to be wary of overpaying for picks in such an environment. One reason is that the economy has not done well for the past four-five years and Nifty earnings have barely moved. “The fourth quarter of 2019-20 and the first quarter of 2020-21 (FY21) have been a washout for Corporate India. When the base (earnings) reduces, the P/E ratio will look infla.....

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