Nifty 50 logs best week in 3 months, valuations hit multi-year lows: Bear case scenarios point to THESE year-end levels

Nifty 50 valuations: Domestic equity benchmarks Sensex and Nifty 50 surrendered early gains to close almost flat in the previous session amid volatile trade after uncertainties over the global trade war sapped investors' risk appetite. Benchmark NSE index Nifty 50 logged its best week in three months, led by heavyweight Reliance Industries and metal stocks, after losses in the past three weeks triggered bargain buying.

Snapping its two-day winning streak, the 30-share BSE Sensex slipped 7.51 points to settle at 74,332.58. During the session, it climbed 246.34 points or 0.33 per cent to hit an intraday high of 74,586.43. However, the broader Nifty of NSE edged up 7.80 points to close at 22,552.50. During the day, the 50-share barometer rose 89 points or 0.39 per cent to hit a high of 22,633.80.

The NSE Nifty 50 rose about 1.9 per cent this week, its best in three months, while the Sensex gained 1.6 per cent and logged its highest weekly gains since January-end. Besides, traders highlighted that a bearish trend in global markets and persistent foreign fund outflows also hit investor sentiments.

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Nifty 50 valuations at multi-year lows

According to SEBI-registered domestic financial services provider Ventura Securities, Nifty’s forward P/E valuations for CY25 and CY26 have declined to multi-year lows of 18.5X and 16.2X, respectively, amid the ongoing stock market correction. Historically, during major market meltdowns — such as the global financial crisis (GFC) in 2008 and the COVID-led crash in March 2020—Nifty’s forward P/E dropped to 10.5X and 15X, respectively. 

In 2020, despite the COVID-19 crash being more severe than the GFC, the fall was not as deep as the world was more aware of quantitative easing (QE) and its effect than in 2008. Global triggers include reversing US trade policies (tariffs), clamping on fraudulent and abusive expenditures, rectifying the fiscal deficit, and preferring onshore manufacturing over imports.

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Nifty bear case scenarios indicate three year-end levels

Nifty Index: Bear Case Scenarios for 2025

According to Ventura Securities, If valuations during previous corrections are used as reference points, the Nifty 50 could decline to the following year-end levels:

Bear Case 1: 20,510 (based on CY25 consensus EPS of ₹1,194 and 15X forward P/E seen during the 2020 Covid crash) or

Bear Case 2: Extreme stress-case valuation of 14,357 (if it mirrors the 10.5X forward P/E from the 2008 GFC)

Bear Case 3: However, the median of the two, 17,434 (12.75X P/E), is the more likely deeper correction.

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Why is there the possibility of a pessimistic scenario?

The US government debt stands at $34.6 trillion (120 per cent of its GDP). The government has proposed a $4.5 trillion tax break to stimulate economic growth and job creation, and the debt ceiling has also been raised by four trillion. However, this move could increase the budget deficit and debt requirements. 

The government has outlined a blueprint for a $2 trillion spending cut to mitigate fiscal pressures. Another concern is that the country could enter a debt spiral if the US GDP growth rate falls below the US Fed interest rates. Interest spending has already surpassed defence spending, which should be taken as a warning if the situation is not corrected.

Another challenge is that $12.6 trillion debt was issued post-COVID at very low rates. With $3 trillion maturing in 2025, it will need to be rolled over at 4.3 per cent, a rate much higher than when it was issued. The US Fed faces a policy dilemma—cutting rates could reignite inflation, while raising rates would escalate the interest burden on the national debt, making fiscal sustainability challenging.

"The Trump administration has taken a measured, stubborn and deliberate approach to address this issue by prioritizing debt reduction. While this strategy aims to break the debt spiral, it could lead to liquidity contraction, disrupting the already inflated valuation multiples," said Ventura Securities.

If inflation rises sharply, the US Fed may adopt a more hawkish stance, leading to higher interest rates, increased borrowing costs, and slower economic growth. As corporate earnings weaken and job cuts rise, market volatility could escalate. The US market is already in bubble territory. Given the above provocations and situation, US markets may be correct.

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"Stock markets see all kinds of players—traders, speculators, and long-term value investors. But at the core, what really moves the market is liquidity. When interest rates are low, more money flows into equities," said Ram Medury, Founder and CEO of Maxiom Wealth.

Foreign institutional investors (FIIs) have already pulled out a significant amount of capital, but that money can come back just as quickly. If global liquidity turns favourable, markets may recover. In the long run, capital will find its way to value opportunities, and the broader trend will increase for India.

"As for short covering, it could be playing a role in the recent up-move. But punters may initiate fresh short positions once the covering is done. The Nifty holds strong support levels, but a sustained uptrend needs confirmation through strong volumes across sectors. The recent bounce has been led mainly by infrastructure and commodities. For a broader market rally, participation must extend beyond just a few sectors," added Medury.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts, consider individual risk tolerance, and conduct thorough research before making investment decisions, as market conditions can change rapidly, and individual circumstances may vary.