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Is the stock market overvalued? Let’s Check the technical chart and PE Ratio

Is the stock market overvalued?: The Indian stock market has given more than 100% in the last 5 years. It means it has doubled investors’s money in the last 5 years. Whereas the Nifty Small Cap Index has given more than 186% return in the last 5 years. If you compare the Indian stock market with other countries’s stock markets, the Indian stock market outperforms all. The Indian stock market is giving this type of return when interest rates are at an all-time high and foreign investors continuously pull money from the market.

Retail investors are getting very smart and investing their money in mutual funds. Not just investing but utilizing every dip to invest more, and not pausing their SIP and investment when the stock market is getting corrected. There was a time when our Indian stock market was dependent on foreign investors, but now domestic investors and retail investors are ruling and controlling the market.

One thing is sure: Indian retail investors understand there are more ways to invest money than in real estate and fixed deposits. Our older generation used to think that the stock market was a gamble, but now people are aware of compounding and know that long term, they can make a good amount of money through the stock market.

Now that the election is over, the Bhartiya Janata Party forms the government as well. Now the most important question is whether the stock market is overvalued or not. If we look at the Nifty 50 chart, then we can see that from last year, the Nifty 50 touched 200 EMA only two times. One is due to heavy selling from foreign investors, and the other is due to the volatility of the election result. It clearly shows that we are in a bull run, but the question is whether this bull run is going to continue or not. Let’s find out.

Is the stock market overvalued? Let’s see a technical chart.

If we see the Nifty 50 Technical Chart, then we can say that there is a lot of strength. Nifty 50 is taking good support on the 50-day EMA as well as the 200-day EMA. Whenever there is a correction, investors use that opportunity to buy on the dip. If we check the RSI value of the nifty 50, then its value is right now 60, and it again shows strength, so technically there is no major reason for a big correction. Technically, the Nifty 50 start is looking good, and it is showing strength.

Is the stock market overvalued?

Read: Top Liquor Stocks in India

Is the stock market overvalued? Let’s check the Nifty 50 PE ratio.

If you are a fundamental investor, then the PE ratio is a very important factor that every fundamental investor looks at before investing. The price-to-earnings (P/E) is used to determine the company’s current share price relative to its per-share earnings. 

Generally, fundamental investors consider that if the stock or index PE ratio value is greater than 27, then that stock or index is overvalued. If we look at the image, we can see that right now the PE ratio of Nifty 50 is around 22.3. According to the ratio, we can say that Nifty 50 is not overvalued and is fairly valued right now.

Is the stock market overvalued?

This image also shows that, over the last 5 years, the Nifty 50 PE ratio value has hovered between 20 and 30. 

So if you are a new investor who is worried that the stock market has given a lot of returns and now the nifty 50 is overvalued, then there is no need to worry. If you are a long-term investor, then you should stay calm and remain invested.


So, Is the stock market overvalued? my answer is no. As we have discussed, the Nifty 50 is not overvalued technically as well as fundamentally. My suggestion to all the investors and traders is that they should do their own research and whatever we have discussed is just for study purposes only.


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