P/E Ratio For Stock Market Index And Inconsistency Issues

The other day a friend forwarded me a message about P/E ratio and what NIFTY index might be at the end of FY 2011-12. The message said that assuming that the market comes down by 10% and assuming earnings show a 5% growth, the P/E should be about 14 with Nifty at 5200 (and Sensex at 17000). 

I am recapping this from memory, so I may not be quoting the message 100% right.

I was thinking about this data. The current P/E is about 22.4 and NIFTY is about 5700 (http://indiabulls.com/securities/).

If you factor a 10% fall in index from current levels, then NIFTY will be 5200 (as mentioned in the message) and P/E will fall by 10% from 22.4 to about 20. And apply a 5% growth in earnings, the P/E will FALL from 20 to about 19. So with these assumptions, P/E will be 19 with NIFTY at 5200 (Sensex about 17000).

My question is: Where does the figure of P/E = 14 as mentioned in the message come from? Or did one factor the earning of FY 2020-21 to get the P/E for NIFTY in the short term?

Why can't a simple number be quoted correctly and used consistently everywhere? Or, did I misinterpret the message?

Updated on May 1, 2017:
There is an article in the newspaper today: http://www.thehindu.com/business/are-the-stock-markets-too-hot-to-handle/article18344227.ece Sensex is at 29918 and as per BSE P/E is 22.87 (see snapshot below)

Now with the BSE data above as the reference let's look at the article in Hindu. In the first para it says "As per BSE data, the Sensex currently trades at a price-earnings (PE) multiple of 22.5". I read this article in the hard copy edition this morning. I have presented a snapshot of the article on internet below. See the date on top right of the article.

We are talking about Apr 28th 2017 Friday. What was the Sensex PE? 22.87 or 22.5? Which data is correct? Is the BSE site data wrong? BSE site shows data as per Apr 28 2017 - which was the close on Friday before the weekend. Today is Monday, May 1, 2017.

Continuing on to the article in Hindu today.

A PE of 22.5 means that if the earning of BSE is Rs 1, the price of BSE is Rs 22.5. Let's take another excerpt from the Hindu article.

As stock prices are all about expectations, they point out, the forward PE multiple (the price per rupee of next year’s earnings) is the must-watch indicator, rather than the historical one. So, assuming that Sensex firms expand their profits at 16-17 % for FY18, the Sensex forward PE is 17.8 times. That’s in line with the 20-year average of 18 times.

Now if earning increased 17% then earnings for 2017-18 will become 1.17 (we assumed Rs 1 earlier). The price continues to be Rs 22.5. What is the PE ratio now? It is 22.5/1.17 = 19.23. Where does the author get 17.8 (see quote above). 

Am I making a mistake here?

We have PE values of NIFTY and Sensex differing by 10%  and some articles mention a PE value without referring to the index name. Then we have some authors take a wrong value of PE, rather a different value from that in the index site. Then we have a calculation error. Life is a bit**. I don't get it. 

In addition, some people use trailing values while some use forward figures - there again forward figures are sometimes for next 12 months,  sometimes for next 24 months. 

Additional reading:

• http://vbala99.blogspot.com/2014/10/markets-potato-tomato-sensex-and-nifty.html
• http://vbala99.blogspot.com/2011/01/today-i-read-this-excellent-article.html
• http://www.business-standard.com/article/pf/here-s-how-to-make-your-investment-portfolio-more-resilient-117060500804_1.html - this article (Jun 5 2017) uses the right Sensex P/E.