The biggest jump in earnings and decline in P/E multiples has occurred with top companies in metals and mining, corporate banking, and the oil and gas sectors.
The headline valuation of the broader market has declined in the past one year owing to a sharp rise in the profitability of companies in cyclical sectors such as banking, metals, and oil and gas.
However, a majority of the listed companies have seen a rise in their valuations in the past 12 months.
The average price-to-earnings (P/E) multiple of BSE500 companies is down sharply from 35.6X at the end of January 2021 to a five-year low of 26X on February 9, based on the companies' trailing 12 months' net profits on a consolidated basis.
The index's current average P/E is, however, nearly 20 per cent higher than its 10-year average P/E multiple of 22X.
In comparison, the benchmark BSE Sensex had an average P/E of 26.3X on February 9, according to the data from the exchange.
The Sensex companies account for 44 per cent of the combined market cap of all listed companies while the BSE500 companies have a 91 per cent share.
In contrast, the index median price-to-earnings multiple reached a four-year high of 27.5X on February 9 as investors continue to bid up the share prices of the majority of the companies, expecting faster earnings growth in the forthcoming quarters.
Analysts attribute the dichotomy between the average and median P/Es to a rally in mid- and small-cap stocks.
"There has been a sharp rise in the valuations of mid- and small-cap stocks in the past one year and a majority of the listed stocks falls in this category," said G Chokkalingam, founder and managing director, Equinomics Research & Advisory Services.
In comparison, the biggest jump in earnings and thus decline in P/E multiples has occurred with top companies in sectors such as metals and mining, corporate banking, and the oil and gas sectors.
The average valuation is based on the latest combined market capitalisation and the trailing 12 months' (TTM) net profits of all companies that are part of the BSE500 index.
The BSE500 companies had a combined market capitalisation of Rs 243 trillion on February 9 while they reported a combined TTM profits of Rs 9.34 trillion on a consolidated basis in their latest quarter.
The P/E multiple of the majority of the BSE500 companies is, however, around the median value.
There is also a large variation in the P/E of individual index companies.
While the P/E multiples of top-performing companies such as Adani Green, Adani Total Gas, Avenue Supermart, Bata, Adani Enterprises and Dixon Technologies are in triple digits, many big companies such as Tata Steel, Indian Oil, Power Finance Corporation, Vedanta, Gail (India) and ONGC are trading with a P/E in low single digits.
In all there are 65 companies with a P/E multiple of 10X or less. This number was 53 at the end of January 2021.
In contrast, 43 out of the 500 BSE500 companies are trading with a P/E of 100X or higher, up from 38 such companies a year ago.
At the other end of the spectrum, 45 index companies reported a net loss on a TTM basis in their latest quarter, down from 65 a year ago.