Nifty Z-Score* valuation has moderated from life-time high of 2.8 (Feb-21), but remains rich at 1.8 (May-21).

Insight: Nifty currently trades at 1.9 standard deviations (Z-Score) above the 5-year average on trailing P/E basis, whereas Z-Score based on trailing P/B and trailing P/S is 1.4 and 2.2 respectively. The composite Z-score hits a peak of 2.8 in Feb-21 and currently stands at 1.8; Z-score above two standard deviations can be considered stretched. Historically, there have been only 12 monthly instances when Nifty has traded above 2 Z-score since 2005. The current value at 1.8 suggests valuations have become more fair than Feb-21, which can be attributed to the base-effect( weak 4QFY20).

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