Is the market cheap or dear against its own past?

What premium does India's country risk add?

Damodaran's 1 Jul 2026 reference edition puts India's equity risk premium at 6.92%. This is a country-adjusted required premium above a default-free rate. It is not a return forecast derived from today's Nifty price.

India's Baa3 sovereign rating maps to a 1.75% default spread. Multiplying that spread by the workbook's 1.5545 equity-to-bond volatility ratio gives the country premium. Adding the mature-market premium gives the total ERP.

Default spreads corrected on July 9, 2026. Source captured 5 Oct 2026. This is a dated reference, not a daily estimate. The US is excluded from these bars because its premium is estimated directly from market cash flows. Company exposure depends on where it operates; an India incorporation alone does not determine its country premium. Source workbook · Damodaran's methodology.

The other readings

Two more ways to ask the same question: the decade-smoothed CAPE for the Nifty 50 and for the broad market.

Every index against its own history

Each index is placed only against its own past: a P/E percentile of 90 means it has been cheaper 90% of the time. Sectors earn in different ways, so one index's P/E is never compared with another's.

Over time

P/E moves with both prices and profits, so it can jump when profits collapse, as in 2020–21, as much as when prices soar. CAPE averages ten years of real earnings and moves more slowly. Choose an index to see its own history.

Where did the return come from?

An index can rise because its implied earnings grew, investors paid a higher P/E, or dividends were reinvested. This accounting separates those three movements. Changes in index membership and earnings definitions can also move implied earnings, so this is not a measure of organic profit growth.

For example, an ordinary return of 10% is a log return of 9.5 points. To turn the sum back into an ordinary return, use 100 × (exp(sum ÷ 100) − 1). The table shows both.

A check on our CAPE

Our CAPE is computed from NSE's published P/E and CPI. IIMA's Indian Valuation Index builds its own from company earnings. The two use different data, so the test is whether they move together, not whether they match.

Has valuation told us anything about returns?

Starts in the cheapest third of Sensex CAPE readings were followed by a median real return of 12.8% a year over the next five years, and starts in the dearest third by 2.3%. The return is the Nifty 500's, with dividends and after inflation, for every start month from May 2000. The windows overlap, so the 256 start months hold only 5.3 separate five-year periods, about 1.4 in each third.

How to read it. Count independent periods, not months. The ten-year fits look strong (a t of −25 on the Sensex) only because 196 overlapping windows contain 2.6 separate decades, one or two valuation cycles. At five years, 90% of non-overlapping subsamples give a Sensex CAPE slope of the same sign as the full fit. Trailing earnings yield explains less (R² of 0.13 at five years, against 0.69 for Sensex CAPE). Blank subsample cells at ten years mean too few points to fit.

Every start month is also in the published data (JSON); neighbouring months share most of their window, so a plot of them looks far more certain than it is. Sources: IIMA's Indian Valuation Index (Sensex and Nifty 500 CAPE), NSE (Nifty 500 P/E and total return index), all-India CPI. Pre-registered before it was computed: specification and results log (C1). How our valuation series are built: method.