Large is Beautiful

Abstract

A recent news item1 reports that when the world was in celebration mood for Christmas in December 2019, the BSE Sensex scaled a twenty-year high price-to-earnings (P/E) multiple of 29X, which is just about the same as the Sensex P/E of 30X during the peak of the tech boom in 2000. The news report further informs that much of the recent rally in the Indian stock market was not based on the fundamental performance of the underlying companies. In fact, during the whole year of 2019, while the Sensex had grown by 14%, the index underlying earnings per share (EPS) fell by 6.7%. Is this a precursor to a bubble? Is there a similar rally in the mid and small cap stocks? We attempt to address these questions in this article.