According to Ambit Research,
Over the last 8, 10 and 20 years, the total returns from the Nifty have moved very closely with growth in dividends, with P/E multiple expansion having played a negligible role. However, over the last 3 years, the picture has changed as Nifty returns have been primarily driven by P/E expansion. As a result, on measures like trailing P/E and P/S, the Nifty is trading close to its all-time highs even as consensus EPS growth estimates are repeatedly pulled back year after year. The picture is even more worrisome for broader markets (top 500 firms by market cap) which look much more overvalued than the Nifty. On the basis of current divergence in valuations versus fundamentals, we highlight Banking as a sector most at risk and reiterate our FY18 Sensex target of 29,000 (implying 10% downside).
