Valuation: P/E, CAPE, dividend yield and yield gaps

Code: pipeline/tipsheet/compute/valuation.py, publish/valuation.py.

Bundles: valuation/*.

Coverage: 22 indices, listed in CORE_INDICES.

Inputs

• NSE daily P/E, P/B and dividend yield (nifty_index_valuations). Nifty 50, Nifty 500 and Nifty IT go back to 1999. Others start at their launch.
• Index levels: price and total return, from NSE.
• CPI: India Data Hub INCPBLCPIA12M, the spliced CPI with 2012 = 100.
  • We checked it against MoSPI’s 2024-base series. The level ratio is constant from 2013 to 2026, and 2026 year-on-year rates match within 0.01 pp.
  • Of about 62 identical vintages, the latest is used.
• 10-year G-sec yield: monthly, from India Data Hub.
• Household inflation expectations: 12 months ahead, from RBI’s survey via India Data Hub.

CAPE

1. Implied earnings per share: close ÷ P/E.
2. Real earnings: each month’s EPS is restated in today’s rupees using CPI.
3. CAPE: today’s real price ÷ the average real EPS over the 120 complete months before this one. It needs 10 years of P/E history, so Nifty 50’s CAPE starts in 2009.

NSE’s 2021 switch from standalone to consolidated earnings

• What happened: on 2021-03-31, NSE moved index P/E from standalone to consolidated earnings. Nifty 50’s P/E fell from 40.4 to 33.2 in a day while the index moved about 1%.
• The adjustment: the factor is measured per index on that date, as consolidated EPS ÷ standalone EPS. Earlier EPS is scaled by it.
• When the adjustment is withheld:
  • The adjustment is trusted only if the factor lies between 0.85 and 1.35.
  • Outside that band, scaling ten years of history by one day’s ratio isn’t credible. So the adjusted CAPE is withheld, and only the unadjusted CAPE is published.
  • Examples: Auto 0.27, Metal 0.53, Realty 0.26, Midcap 100 2.17. Auto’s and Metal’s factors are below 1 because of real overseas-subsidiary losses.
• What we publish: both series, cape (consolidated basis) and cape_unadjusted.
• P/B shows no break at the switch, so its full history is used as is.

Check against IIMA

The comparison is with Jacob and Raju’s CAPE at IIM Ahmedabad, capeindia.iima.ac.in (cite: Jacob and Raju 2024, SSRN 4911989).

• Our unadjusted Nifty 500 CAPE matches theirs:
  • correlation 0.995 over 212 months
  • median ratio 1.007
• IIMA does not adjust for the 2021 switch.
• Where today sits: on a consistent consolidated basis, Nifty 500’s CAPE in August 2026 was at the 85th percentile since 2009. IIMA’s series puts it at the 78th.
  • Our adjustment assumes the consolidated/standalone gap was constant. If the gap was smaller in the 2000s, the early years are over-adjusted.
  • So the truth likely lies between the two. Both are published, with this explanation.

Dividend yield

• NSE changed its dividend-yield method on the same date (2021-03-31). Persistent jumps appear that differ by index: FMCG 1.32 → 2.74%, Auto 1.66 → 0.57%.
• The primary series is dividend_yield_tri: the trailing 250-session yield implied by the gap between the total-return and price indices. It is computed one way throughout.
  • Over long periods it tracks NSE’s figure (median ratio 0.9–1.0).
• NSE’s own figure is kept alongside.

Yield gaps

Percentiles

• The snapshot reports each measure’s percentile within its own history, with the date that history starts.
• P/E percentiles use the consolidated basis. Where the adjustment is withheld, they use only the history since the switch.
• CAPE percentiles need at least 60 months of CAPE.