Valuation benchmarks might have to change
While discussing the present state of affairs in the markets, especially the valuations, two statistical parameters are used most often – (1) The price to earnings (PE) ratio of the benchmark (e.g., Nifty50) and (2) the market capitalization to GDP ratio (popularly known as Warren Buffet indicator). Both these indicators may soon lose their relevance, particularly in the context of Indian markets. In next couple of years a large number of new economy stocks may get listed. Many of the new economy stocks that listed earlier may get included in the benchmark indices. Obviously, the old economy stocks, especially PSU and cyclical commodity stocks will pave the way for these new economy stocks. The point here is that the new economy stocks are valued at multiple of revenue not profits. For example, it is expected that in the next Nifty reshuffle Avenue Supermart (198x PE) or Info Edge (500x PE) may replace Indian Oil Corporation (5x PE). This will obviously inflate the composite valu...