Nifty Valuation Tracker Series: September 2026 Update – Broad Market and Smart Beta Indices 04Oct2026
(This is my 538th blog since 2010. Over the years, I have covered global financial markets, with a focus on India, and continue to share insights to help readers understand complex topics in simple language.
The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance.
Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)
1 Introduction
Every investor wants to know whether the market is expensive or inexpensive. There is no perfect answer. However, comparing today's valuations with their own history provides a useful starting point.
This blog is the fourth part of the updated valuation framework for select NSE indices numbering six, building on earlier studies published:
1) On 21Apr2026 namely “How Valuations Shape Returns and Risk in Select NSE Indices,”
2) On 03May2026 namely “Valuation Changes in Broad Market and Smart Beta Nifty Indices," and
3) On 31May2026 namely "Nifty Valuation Tracker Series: May 2026 Update – Broad Market and Smart Beta Indices"
4) On 04Jul2026 namely "Nifty Valuation racker Series: June 2026 Update – Broad Market and Smart Beta Indices"
It is not a prediction of future market returns. It is simply a framework to understand where valuations stand today. This is not investment advice.
Note: The idea is to update this 23-quarter framework each quarter as new data become available. For example, inclusion of the Oct-Dec2026 quarter will extend the dataset to 24 quarters in the next update, maintaining a rolling historical reference.
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Related blogs:
"Nifty Valuation Tracker Series: June 2026 Update – Broad Market and Smart Beta Indices" 04Jul2026
"Nifty Valuation Tracker Series: May 2026 Update – Broad Market and Smart Beta Indices" 31May2026
“Valuation Changes in Broad Market and Smart Beta Nifty Indices” 03May2026
“How Valuations Shape Returns and Risk in Select NSE Indices” 21Apr2026 ("Summary data" -- including raw data -- table of 21 quarters for period from Mar2021 to Mar2026 for each of the six NSE Indices discussed in the blog) (Nifty Valuation Tracker Series)
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2 Why valuations matter
Valuations tell us how much investors are willing to pay for a company's earnings or assets.
A valuation below the 25th percentile suggests that an index is relatively inexpensive compared with its own history. A valuation above the 75th percentile suggests that it is relatively expensive.
PE, PB and dividend yield should be viewed together. None of them, by itself, is a sufficient basis for an investment decision.
About this study:
This is the September 2026 update of my Nifty Valuation Tracker series. The study, similar to the previous studies, focuses on current valuation positioning within a historical range.
The analysis compares current levels (as of 30Sep2026) against a 23-quarter baseline from Mar2021 to Sep2026 across six Nifty indices. It looks at returns, volatility, PE, PB and dividend yield.
It uses percentile-based positioning of PE, PB and dividend yield to assess whether valuations are relatively rich or attractive across segments.
The analysis starts from Mar2021 because the method used to calculate Nifty 50 earnings per share changed at that point. Using only the newer data makes the historical comparisons consistent.
The study covers six selected Nifty indices, three broad and three "smart beta" indices. It is not a comprehensive study of the Indian equity market.
Indices covered are:
Nifty 50,
Nifty Midcap 150,
Nifty Smallcap 250,
Nifty 100 Low Volatility 30,
Nifty 200 Momentum 30, and
Nifty 200 Quality 30.
Charts showing Summary Return / Valuation data and current valuation (Sep2026) versus historical range (23 quarter data from Mar2021 to Jun2026) of six select Nifty indices >
Click on the charts to view better >
3 Broad Market Indices:1. Nifty 50 Index
Nifty 50 looks the least expensive among the three broad-market indices.
Its current PE of 19.4 and PB of 2.8 are both at the minimum levels seen during the 23-quarter study period. Its dividend yield of 1.22 per cent is around the 25th percentile.
This makes the valuation picture for Nifty 50 much more comfortable than that for mid- and small-cap stocks.
But valuations are also a function of the market sentiment, which rightly or wrongly perceives Nifty 50 stocks having low growth opportunities compared to their smaller counterparts in India and foreign markets.
2. Nifty Midcap 150
Midcaps look reasonably valued, although not cheap. The current PE of 28.4 is below the historical median of 30.6. PB at 3.8 is also below the median of 4.1.
Dividend yield, at 0.71 per cent, is below the 25th percentile. Thus, on this framework, Midcap 150 does not look stretched in the way Smallcap 250 does.
3. Nifty Smallcap 250
Smallcaps continue to look expensive on some important measures.
PE at 34.5 is above the 75th percentile of 33.7. Dividend yield, at 0.61 per cent, is at the lowest level of the study period.
PB at 3.4 is below the historical median of 3.6, so the signals are mixed. Nevertheless, the high PE and very low dividend yield suggest caution.
4 "Smart Beta" Indices:
4. Nifty 100 Low Volatility 30
The index looks relatively attractive on valuation.
Its PE of 23.7 is below the 25th percentile. PB of 3.6 is at the minimum level of the study period. Dividend yield, at 1.26 per cent, is also below the 25th percentile.
The index also has the lowest historical median volatility among the six indices in this study, true to its label.
5. Nifty 200 Momentum 30
Momentum has become noticeably cheaper during the quarter.
Its current PE of 23.2 is below the historical median of 24.3. PB of 4.3 is at the median. Dividend yield of 0.86 per cent, however, remains below the 25th percentile.
Momentum has historically produced strong returns, but also carries relatively high volatility.
6. Nifty 200 Quality 30
Quality presents an interesting valuation picture.
Its current PE of 25.7, PB of 7.9 and dividend yield of 1.86 per cent are all below their respective 25th percentile levels.
On this historical framework, therefore, Quality looks relatively inexpensive.
5 Cross Index Valuation, Risk and Return (Median Values Only):
The historical data show that indices with higher median one-year returns have generally also experienced higher volatility.
The median one-year return during the study period (23 Quarters from Mar2021 to Sep2026) was 11.9 per cent for Nifty 50, compared with 24.5 per cent for Midcap 150 and 27.2 per cent for Smallcap 250.
Momentum also delivered a high median one-year return of 21.3 per cent.
But higher returns came with higher volatility. Median standard deviation was 13.6 per cent for Nifty 50, 17.1 per cent for Midcap 150, 18.4 per cent for Smallcap 250 and 19.2 per cent for Momentum.
True to its nature, Low Volatility 30 had the lowest median volatility at 12.0 per cent. Quality had a median return of 14.4 per cent with volatility of 13.6 per cent.
These are historical observations, not forecasts.
Chart 7 showing cross index valuation, risk and return (only median values) >
23 Quarters data from Mar2021 to Sep2026 >
6 What Changed During the Jul-Sep2026 Quarter?
PE and PB declined for all six indices between Jun2026 and Sep2026. Nifty 50 PE/PB fell 5.9 per cent/10.9 per cent, Midcap 150 by 2.6 per cent/19.9 per cent, while Momentum saw the sharpest fall at 12.8 per cent/15.9 per cent.
Chart 8 showing valuation changes in six Nifty indices between end-Jun2026 and end-Sep2026 >
Click on the chart to view better >
A paradox: An interesting divergence was seen in dividend yields. For Midcap 150 and Quality 30, PE and PB fell while dividend yield rose. But for Smallcap 250, Low Volatility 30 and Momentum 30, all three declined.
This is not necessarily contradictory. At index level, PE and PB can fall when earnings or book value grow faster than market value. Dividend yield, however, depends on dividends paid over the preceding 12 months relative to market value.
It can therefore fall if dividends decline or grow more slowly. Changes in index constituents and their weights can also influence all three measures.
This apparent paradox needs a more comprehensive analysis of index composition changes and dividend payouts of index constituents -- which is outside the scope of the current study.
7 PE and PB Contraction versus Index Returns
As shown in chart 9 below and discussed in Section 8 above, PE and PB fell across all six indices during Jul-Sep2026, indicating valuation de-rating.
Yet price declines were much smaller than the PE declines in Smallcap 250, Quality 30 and especially Momentum 30.
Momentum 30 stands out: its 12.8 per cent PE decline was cushioned by an 8.3 per cent implied earnings contribution.
From chart 9 below, the implied earning contribution is as follows:
Nifty 50: 0.71% [-5.2 - (-5.9)]
Nifty Midcap 150: -1.34%
Nifty Smallcap 250: 3.45%
Nifty 100 Low Volatility 30: -0.44%
Nifty 200 Momentum 30: 8.30%
Nifty 200 Quality 30: 3.70%
Interpretation:
As shown above, the implied earnings contribution is small / negligible for Nifty 50, Midcap 150 and Low Volatility 30 indices; but very high for Momentum 30 index.
How does one interpret this?
For Momentum 30, the index price fell only 4.5 per cent despite a much larger 12.8 per cent fall in PE. The 8.3 per cent gap suggests that strong growth in the earnings base substantially cushioned the PE de-rating.
In contrast, for three indices, namely Nifty 50, Midcap 150 and Low Volatility 30, there was little earnings offset to the valuation de-rating.
The striking message is: During Jul-Sep2026, the sharp PE de-rating in Momentum 30 was substantially cushioned by strong growth in trailing earnings -- as such, price index change was lower at 4.5 per cent versus PE de-rating of 12.8 per cent.
This contrasts with Nifty 50 and Low Volatility 30, where the decline in PE broadly explains the decline in prices.
(Check additional notes below for a note on implied earnings contribution)
Why price index, not TRI?
The analysis in Chart 9 below compares changes in index price with changes in PE and PB.
Index PE is based on market capitalisation, which moves with the price index rather than dividends.
TRI includes dividends, so price index change gives a cleaner comparison with PE/PB changes.
Chart 9 Showing PE and PB Contraction versus Index Returns for six indices between end-Jun2026 and end-Sep2026 >
8 Shortcomings
This analysis has certain limitations.
It covers only six selected Nifty indices. It does not fully represent the Indian stock market though it fairly captures large part of the market.
The analysis uses only end-quarter data. It does not capture valuation changes or market movements that occurred during the quarter.
The Jun2026 to Sep2026 comparison therefore shows the change between two quarter-end points, rather than the path followed during Jul-Sep2026.
The historical period is limited to 23 quarters because of the change in Nifty 50 earnings calculations since Mar2021.
The study focuses only on valuations. It does not consider earnings growth, interest rates, liquidity, macroeconomic conditions or investor sentiment.
9 What stands out in Sep2026?
The Sep2026 data show a meaningful divergence across Nifty indices. Nifty 50 appears relatively inexpensive compared with its recent history, while Midcap 150 looks reasonably valued.
Smallcap 250 remains expensive on PE and has an exceptionally low dividend yield.
Among the smart beta indices, Low Volatility 30 and Quality 30 look attractive on this valuation framework. Momentum has also become considerably cheaper compared with Jun2026.
Valuation should be treated as one input into investment decisions, rather than as a market-timing tool.
The Nifty Valuation Tracker will be updated again with the next quarterly data.
Check below for references and additional notes.
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Additional data:
1) Note on implied earnings contribution:
In the investment industry, it is a standard practice to use phrases, like, earnings growth, earnings contribution, or fundamental contribution.
To be on the safer side, the author has used the term 'implied earnings contribution,' since it is inferred from index return and valuation changes rather than measured directly from reported earnings.
In practice, these terms generally convey the same underlying idea: the portion of return attributable to growth in earnings rather than changes in valuation multiples.
To put simply, at the market index level:
Price Return ≈ Earnings Growth + Multiple Expansion
At the stock level:
Price Return ≈ EPS Growth + Multiple Expansion
One could also say:
Earnings Component ≈ Price Return − Multiple Expansion.
2) Data note: The valuation measures come from Nifty Indices. PE, PB and dividend yield may not update at the same frequency, because each depends on different underlying data.
The author's best guess is:
PE ratios update more often, because NSE India / Nifty Indices appear to refresh EPS as companies declare quarterly and annual results.
In contrast, PB ratios update less often, because book value is reported half-yearly and yearly, not every quarter for all listed companies in India. It's possible NSE India may be updating book values based on published fiscal year (annual reports) data.
Dividend yield updates with price daily and with the declared dividend when companies announce it, so its rhythm differs again.
3) Index rebalancing frequency is as follows:
It is semi annual (March and September) for:
Nifty 50,
Nifty Midcap 150, and
Nifty Smallcap 250,
For, Nifty 100 Low Volatility 30, it is quarterly (March, June, September, December).
For Nifty 200 Momentum 30 index, it is semi annual (June, December).
For Nifty 200 Quality 30 too, it's semi annual (June, December).
Notes on index weighting:
Nifty 100 Low Volatility 30 index's 'score' weighting is based on inverse of stock's volatility (standard deviation).
Nifty 200 Momentum 30 index's 'tilt' weighting is calculated as stock free float market cap multiplied by its momentum score.
Nifty 200 Quality 30 index's 'tilt' weighting is computed as stock free float market cap multiplied by its quality score.
Chart showing Index Characteristics of six Nifty indices >
References:
Tweet 22Apr2026 Bizarre spike in valuation ratios (PE, PB and dividend yield) of Nifty 200 Momentum 30 index on 31Dec2024 vs previous day)
Tweet 03Jun2021 - Nifty 50 PE calculation method change wef 31Mar2021
Tweet 01May2024 - Don't compare Nifty PE ratios on or after 31Mar2021 with those in prior periods
Tweet 07Jul2024 - NSE press release on change in Nifty 50 PE calculation method (NSE press release dated 23Feb2021 -- EPS used in PE calcualtion was based on standalone finanacials; from Mar2021, it is based on consolidated basis)
Screenshot of the above >
Nifty Indices factsheets
Nifty 50
Nifty Midcap 150
Nifty Smallcap 250
Nifty 100 Low Volatility 30
Nifty 200 Momentum 30
Nifty 200 Quality 30
NSE Index Dashboard monthly - PDF for Sep2026
NSE Live Analysis - NSE Index performance daily - showing index values and valuation ratios of all Nifty Indices / NSE Indices on a daily basis
NSE Historical Index yield - Find out daily valuation ratios (PB, PE and dividend yield) of all Nifty indices / NSE indices (dropdown menu)
NSE Market Watch - all indices
Nifty Indices Index Methodology - Jun2026 PDF for equity indices
NSE India - PE Ratio definition / calculation method
Excel file: NSE Indices Valuation 30Sep26
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Read more on passive equity funds and factor investing:
Top 10 Equity Indices Powering Passive Investing in India: Big-Picture View 29Jan2026 (Big picture view of Passive Equity Funds - passive funds)
The Next Generation of Market Leaders: A Fresh Look at Nifty Next 50's Corporate Landscape 15Jan2026 (NSE Indices / Nifty Indices) NSE's Backtesting Claims Child Indices Beat Parent Indices - But Does It Hold in Real World? 09Dec2025 (incl calendar year returns of Nifty 50, Nifty Midcap 150 and the so-called smart beta indices) (NSE Indices / Nifty Indices)
Factor Investing in India: Do "Smart Beta" Indices Outsmart Nifty 50 and Midcap 150? 24Nov2025 (incl trailing returns; calendar year returns of Nifty 50, Nifty Midcap 150 and the so-called smart beta indices) (NSE Indices / Nifty Indices)
