Mumbai: Valuation has been a topic of discussion Dalal Street For a while now but it is suddenly gaining momentum. Nowadays every conversation starts P / E ratio (price-to-earnings ratio, which compares the current price of a share with earnings per share) and ends with a loud declaration that the valuation appears to be ‘slightly stretched’.

However, many experts believe that looking at the ratio in isolation will not help. investors understand the realities of Market And high valuations may not be the only deciding factor driving the market.

“Valuation matters in the long run, but does not impact in the short term. This is because there is never a true valuation for a stock, as it is a highly personal call,” said Mukesh, director of Ghalla & Bhansali Securities. Dedhia says.

For example, a stock with a high P/E may go ahead because there is more demand for the stock due to its higher earnings potential. So, there is always a little confusion about the correct valuation,” he says.

“If you look at the broader market, it is difficult to pick a price. But even if you are doing the bottom up method, you will still find many stocks in the market with the right valuations,” says Rajeev Thakkar, CEO of Parag Parikh Financial Advisory Services. Though he is a firm believer in value investing, he says that looking at just one ratio would not be the right way to invest in stocks.

“There are many things that you have to consider. For example, you need to find out whether the growth rate is sustainable or how much capital is needed to sustain growth. Occasionally, volumes will increase, but margins may be under pressure. There are many issues to consider, just looking at one ratio is not enough,’ he says.

Some experts also believe that higher valuations can be justified if foreign investors continue to invest in the stock market with the expectation of outperforming Indian companies.

“The current assessment does not justify India’s long-term growth potential. The market is trading at 17 times the earning potential in 2011 and around 13.8 times the earnings forecast for 2012. This places a premium of around 50% in other emerging markets and around 25% for other global markets,’ says Devendra Nevgi, Founder and Principal Partner, Delta Global Partners. He believes the premium can be justified if foreign investors continue to bet on Indian stocks.