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ET Intelligence Group: The elevated price-earnings of the benchmark Nifty 50 may sustain
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in the near term given the favourable ratio between the 10-year government bond yield
and the earnings yield of the index. The ratio that measures relative attractiveness of Ril
equities over bonds is currently at 1.22 — in line with the 10-year average of 1.17,
according to data from Bloomberg. Big Change:
The end of Five-Year Plans: All you need to know
The bond-earnings yield ratio, often called as BEER ratio, is calculated by dividing the
benchmark 10-year bond yield and earning yield of the stock market or the benchmark
index. India’s 10-year bond yield is currently at 6.58 per cent, while the earnings yield of
the Nifty 50 is 5.4 per cent, which is the inverse of the price-earnings (P/E) multiple.
According to Axis Capital’s calculation, the BEER ratio is the lowest since 2013. If the ratio is high, the stock prices will likely fall and vice
versa. Since the Nifty’s BEER ratio has been in line with long-term average, it will support current valuation.
The Nifty 50’s one-year projected P/E is 18.5, which is at 22 per cent premium to the long-term average. Despite this, the index may
continue to sustain the momentum going by the movement in bond market yields.
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https://economictimes.indiatimes.com/markets/stocks/news/nifty-likely-to-maintain-its-strong-momentum-on-softer-beer-ratio/printarticle/73237400.cms 1/1