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ICICI Securities Report
Amongst the two major valuation approaches (‘asset approach' using price/book ratio and the ‘income approach' using price/equity ratio), Nifty 50 index is currently trading at relatively reasonable valuations on price/book basis at 3.6 times, which is 0.77 standard deviation above long term average, largely driven by cheaper valuations of capital intensive sectors.
Peak price/book was hit at six times in early 2008 when the Nifty 50 return on equity hit 29% on the back of high operating and financial leverage as compared to the sub optimal 12% currently.
In fact, 46% of NSE200 universe in capital intensive sectors is currently trading at price/book z-score of less than zero.
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