Nifty records best week in three months, but valuations reach multi-year lows

The Nifty 50 has experienced its best week in three months, rallying by approximately 1.9% for the week. Despite this, its forward P/E valuations for FY25 and FY26 have fallen to multi-year lows, standing at 18.5X and 16.2X, respectively. This comes amid ongoing market volatility and a stock market correction.

In Friday’s volatile trade, the Nifty 50 closed with minimal change, rising 0.03% to 22,622.5, while the BSE Sensex slipped 0.01%, ending at 74,332.58. Despite these minor shifts, both indices recorded their strongest weekly performances since January. The Nifty was bolstered by strong performances from heavyweights like Reliance Industries and metal stocks, as investors engaged in bargain buying after three weeks of losses.

Global uncertainties, especially regarding trade tensions, and persistent foreign fund outflows have dampened investor sentiment. However, despite these challenges, the Nifty’s 1.9% gain for the week and the Sensex’s 1.6% increase signal potential recovery in the short term.

Bearish Scenarios for Nifty in 2025

Market analysts, including Ventura, warn of a potential further downturn if the current correction trend continues. Comparing past major market meltdowns, such as the Global Financial Crisis (GFC) in 2008 and the Covid-led crash in 2020, the Nifty’s forward P/E dropped to 10.5X during the GFC and 15X during the 2020 crisis.

Bearish scenarios for 2025 suggest:

Nifty could fall to 20,510 based on the CY25 consensus earnings per share (EPS) of INR 1,194 and a 15X forward P/E, similar to the 2020 Covid market dip.

A worst-case scenario, mirroring the 2008 GFC, could see the Nifty drop to 14,357, based on a 10.5X forward P/E.

However, analysts believe a more probable correction would see the Nifty settle around 17,434, which represents a 12.75X P/E multiple. While the outlook remains uncertain, these levels are crucial to watch as the year progresses.