Is the Market Actually Cheap Right Now? A Retail Investor's Guide to Current Valuations!

When fear takes over Dalal Street, prices fall. And when prices fall, valuations get interesting.

Warren Buffett once said, "Be fearful when others are greedy, and be greedy when others are fearful." Right now, fear is very much in the air. A war between the US, Israel, and Iran. Crude oil above $100 a barrel. The Sensex crashing to near one-year lows. Retail investors panic-selling.

But here is the thing about fear. It is also the market's biggest sale event.

So let's step back from the noise, look at the numbers, and figure out where valuations actually stand today.

How Have the Markets Performed Lately?

Before we talk about valuations, let's understand where markets have come from. The Sensex currently sits around 75,503 points, down nearly 9.52% over the past month, though it remains about 1.80% higher than a year ago. The Nifty 50 has returned just 2.27% over the past 12 months, a far cry from the 20%-plus returns of 2023 and 2024. It has ranged between 21,743 and 26,373 over the past 52 weeks, meaning the market has essentially been in a prolonged consolidation.

The broader market has bled even more. The Nifty Midcap 150 has changed by just 2.52% over the past 12 months. The Nifty Smallcap 250 sits at 14,860 as of March 16, against a 52-week high of 18,077, meaning smallcaps are down nearly 18% from their peak.

So the market has already corrected. Significantly. But is it cheap?

What Does the P/E Ratio Tell Us? (And What Is a P/E Ratio?)

Think of the P/E ratio like the price tag on a business. If a company earns Rs 10 per share and you are paying Rs 200 for it, the P/E is 20. It means you are paying 20 times its annual earnings. The higher the number, the more expensive the business. The lower, the cheaper.

Now let's apply this to indices.

Benchmark Indices: Nifty 50

The Nifty 50 currently trades at a P/E of 20.26. Over the past five years, the median P/E has been 22.12, putting today's valuation in just the 5th percentile of that range. To put this simply, the Nifty 50 is currently trading below its own historical average. The long-term average Nifty P/E is around 23.43. The lowest the Nifty P/E ever went was 17.15 during the COVID crash of March 2020. We are not at panic-bottom levels yet, but we are significantly below the expensive zone.

What does this mean for you? The large-cap index is fairly valued to modestly cheap right now. Not a fire sale, but not expensive either.

Broader Indices: Midcaps and Smallcaps

This is where things get genuinely interesting.
The Nifty Midcap 150 currently trades at a P/E of 30.14. Its 3-year median P/E is 33.45 and its 5-year median is 31.29, meaning the current P/E is nearly 10% below the 3-year median. After two years of being called "overheated," midcaps have corrected to fairly valued territory.

The story is even more compelling for smallcaps. The Nifty Smallcap 250 currently trades at a P/E of 24.38, against a 5-year median of 28.41 and a 3-year median of 28.71, meaning it is trading nearly 15% below its own historical median.

In plain English: smallcaps and midcaps, which were expensive and overheated through 2023-24, have now corrected to levels that are beginning to seem attractive relative to history.

Sector Snapshot: Who Is Leading, Who Is Bleeding?

Looking at the sector performance data from the image shared, the picture becomes clearer. PSU Banks have been the strongest performer with a 12-month return of 48.49%, ranking 1st, while Metals delivered 27.96%. These commodity and cyclical sectors have benefited from rising global commodity prices.

On the other end, IT is the worst-performing sector with a 12-month return of -19.63%, ranking last. Realty is down 12.35% and FMCG is down 6.38% over 12 months. Interestingly, on a 3-month basis, the damage has been widespread with most sectors in the red, reflecting the recent war-triggered selloff.

Conclusion: Opportunity Comes Dressed in Fear

No one knows when the war will stop. It could end in weeks, or it could drag on for months. That uncertainty is real, and it would be foolish to ignore it.

But what history tells us, consistently, is that markets eventually recover. Every crisis, whether it was the 2008 financial meltdown, the 2020 COVID crash, or geopolitical flare-ups before this one, eventually passed.

What should you do? Ensure your emergency fund is intact, covering at least 6 to 12 months of expenses. Review your asset allocation. Do not put money you will need in the next 1 to 2 years into equities right now.

Because as Buffett reminded us, the best time to act is when everyone else is too afraid to.

This blog is purely for educational purposes and should not be construed as investment advice.