When you hear “this time its different” again and again, you should become extremely careful, some great investor (Templeton?) had said. And I hear that catchy slogan repeatedly now-a-days. What about others here on the forum?
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@Yogesh_s
good analysis.
can you pl. share on which website such PE chart & EPS growth chart are available?
thanks in advance…
I build these charts myself on my PC using Excel.
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That’s great…
thanks.
Been thinking a lot more since the last two days of my original post on the current overheated market. Will it continue to remain overheated? Could be. I was trying to see what could be the next disruptor.
Here are my thoughts.
Next big action very near is GST
If it goes to plan, good and already priced in and may even may have a small rally.
If the launch is messy, that may be the trigger for a correction or crash.
Which, time will tell us.
No… different people have different perspectives. This is not astrology (although, astrology is science as well).
As i said, we need to try and judge the outcome based on the past statistics and current macros. A lot has been said about nifty not sustaining 24 pe and has crashed every time with counterarguments like we need to look at p/b and dividend yield, as well as bond and fd yield. We also need to keep an eye on other investment options such as real estate, gold and there returns. Why this is important? Simply because one need to analyze what is better investment at a particular time and switch one’s pf accordingly.
Prime reason for the real estate bubble was black money. It gave amazing returns for many years but is slowing down big time for obvious reasons. First hand experience!
Gold is well, gold! I have never had a liking for gold as an investment (subjective). For me, it’s just a hedge against falling market. At best a temporary investment.
Fixed deposit is barely beating inflation. No point putting your money in there. Ppf and tax free bonds are very good but one can put limited amount in there.
Any other option left? Why is so much money coming into indian market. Both dii and fii. DII because there is simply no other investment option which offers ‘good’ returns in the current times. This is not merely astrology, but facts. Why FIIi? You know what is happening all over the globe? Negative interest rates, all major economies slowing down, india is growing well, has a stable government, is doing lots of good things with a stiff hand, and there are many such things…due to which FIIs bliv they can vet superior returns than developed markets. Why emerging market - india? I do not know the macros of other emerging economies so cannot comment on that. Do you think any of these things is not happening? One major risk is rupee depreciation, which is hard to predict. As we all know fiis actual returns in usd terms are in negative from 2008 despite market at new highs simply bcz inr has depreciated big time. Now think, do you see inr depreciating further than 67-68 in next few years? It can, but there is low probability with reasoning being Indian macros are improving. Macros improvement/deterioration takes time…so we all are waiting for actual earnings recovery. But with india being so diverse and with political risks, this government is still doing quite a few good things. At least managing things better by putting mineral resources to good use, trying to bring investments, reducing import of oil and coal, online auctions…these things were unheard of in our country. So i am positive about the India story for next 5-10 years.
Coming on to valuation, yes from historical perspective mkt is expensive. No doubt! But should we see it with a jaundiced eye without looking at the improving macros and neglecting years of stupendous future growth due to increasing purchasing power of the growing middle class? Again, i am speaking from a slightly long term perspective. Anyone good enough to time the market may exit and re-enter post correction. Stocks command premium valuation depending on growth outlook. Avenue supermarts is very expensive without doubt maybe because we are in bull market. Well, for 35-40% cagr grower what pe will it command in an average and bear market? Just some mental models. I see growth, opportunity size, and absence of other better investment opportunities as the major driver fueling Indian stocks.
You are absolutely right in saying that we need to be cautious of the valuation while going shopping as that effects returns. Depends on your outlook. Market may correct 10-15% any time, but if one is so sure about that, what is the point discussing? Go sell and reinvest at lower levels. Re-entering is very difficult (guessing the top or bottom is equally difficult). When i said 21-22 pe, i had a mental model based on some assumptions i have listed above.
One may trim down one’s position like i have done in avanti, can fin, garware and many other stocks despite tremendous growth potential. They are expensive now, but they have years of growth prospects ahead so market is valuing those stocks at premium.
I have seen people suggesting why do you need nifty to perform when you are buying individual stocks. Well, it can be argued both ways with facts on both sides.
I think one need to put money in stocks with sector tailwinds, opportunity size, best management. Sectors like health insurance, specialty hospitals, textile, retail are going to do very well for myriad reasons. We need to focus on finding good companies in such sectors and spread our buy as timing the market is difficult to say the least. If you already gave winners, and you are nit comfortable with valuation, better trim. Market ‘most of the time’ give opportunities to add at lower levels.
There are many other points which make me bullish on india, but i have just jotted down a quick summary in this post.
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Dear Mridul,
Most of the things you have mentioned are correct.
Here’s a few things to think about this weekend.
So what you know; I also know. Then what do we not know?
That’s why I gave one hint of GST above. Let me tell you India has seen only a very few major events since it’s independence that actually had a impact of the life of “all” Indians.
1st: Independence
2nd: Economic Reform in 1990-91
3rd: Demonetization
4th: GST (Upcoming)
With all the above common and uncommon man in India had a rough battle (either on the streets or as in the case of the 2nd point, our government was about to get shut down if we did not get foreign money. Although, PV Narsimha and MM Singh are touted as heroes, it was the opposite. They were begging for money and they were told point blank, get rid of license raj and stop controlling the rupee or no funding for you. They had to agree at the last minute or else India would have gone bankrupt. You will find a very different version in history books of the previous administration. It was never reform, it was no other choice for these guys.
Now we apply a probability. GST. Think Differently. Do we realize what a big thing it is? It is introducing a whole new tax class in 20% of the world’s population most of which is uneducated and even the educated will not get it right quickly and smoothly. The probability of it launching smoothly are like 0.5 on a scale of 100. So what will be the consequences? That’s what I am thinking about. Not what will be the result in 5 years. That we all agree will be fabulous and we will do so much better as a country once this is properly implemented. The results over the first 90 days of launch? Its something to think about.
Let me give you a correlated example… RERA launching on 1st July as well. Do you know how many states are ready for the RERA launch next week? Read this: http://economictimes.indiatimes.com/no-marketing-of-project-till-its-registered-centre-to-real-estate-developers/articleshow/59307132.cms Now, this is a law that affects only property developers, compare that in scale to GST.
So, here’s what I thought. The best case scenario; GST smooth, I can always buy my stocks back some a few rupees lower and some few rupees higher… it does not materially make a major difference. But if the GST saga roughens the seas, I get 20% to 50% extra for my money to get back into those same positions.
Plus, I even hinted at the bankruptcy law… there is no one interested in it even on this supposedly financially numerate forum. Everyone I meet is only talking about the 12 names on the list. They are only around 25% of the NPA. So what would you like to lose? 25% of your portfolio or 75%. Now lets apply it to the reality. Reality is, the banks will work it out and maybe buy the equity etc for these 12 names. The real issue is the thousands of unknown names who have 75% of the banks NPA’s. What will happen there? What assets will banks be left with?
Now, lets, add, scenario GST (90 day story to watch) if implemented on time.
Scenario NPA (365 to 700 day story)
Scenario - One direction market for 6 months (what probability of good correction at-least) especially with a overheated NIFTY AND One Direction AND 24 PE crossed?
Add the above 3 and think what are the chances of move A and what are the chances of move B?
And these are the knowable, what about adding just one un-knowable to this probability?
And yes, NIFTY does matter. Because when it moves, everything moves and that works for Mr. Alpha. Why, I could explain right now, but bro, too much typing now. Some other time 
Buddy, I am as long term as I feel like (I am Changu Mangu, not Warren Buffett).
Now let me be clear here - these are probability scenarios and they may not play out so please this is not advise on what you or someone else should do. It’s my thought process, Thats all.
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Picture Perfect. I can just imagine what you think. Great thought process.
Most of the companies are pushing the products with discount before GST. We can see the discounts everywhere. The results are going to reflect this. If the quarterly results are more than OK, do you think this will add fuel to fire or will the fire get extinguished?
The dooms day scenario may be pushed ahead by couple of quarters due to GST.
Hey @reachapg. Apologies I did not respond earlier.
Much appreciate your compliment. Thank you.
To answer your question, I do not follow the sector’s which might be benefitting from the pre GST sales but surely it seems like there is a good amount of buying going on.
Everyone is getting a little giddy with the high altitude that Nifty has climbed so far. Perhaps there are some contrarian opportunities as the market moves closer to the other extreme. Anyone have any great ideas on how to profit from this irrational exuberance? Any strategies other than shorting stocks, buying put options & gold? Is there scope for long term contrarian investing in this market?
Disclosure: I am still invested in equities because I have a rule to keep my stocks for at least one year, no matter what. Sold whatever I had bought more than a year ago. Next sale isn’t due until November.
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The best thing to do might be to hold cash or liquid funds. I would do the same in case I felt that all stocks have been overvalued. But am holding on to some undervalued picks for long term and don’t want to switch to cash.
Had written this day before yesterday. Reproducing here.
Friends. It’s time to be a bit cautious. Be very stock specific while buying. Think not twice, but thrice before pressing the buy button.
Avoid momentum stocks and stocks which have runup a lot.
And it’s the best time to get rid of the deadwood, the marginal conviction stocks in your portfolio and move to high conviction and stocks which offer relative better value.
I would absolutely steer off any leverage.
We must assess all decisions from a risk-reward perspective now. Some of the latest IPOs, though good companies, are at absolutely crazy valuations.
I am cautious, not bearish. I continue to remain positive from a mid to long term view.
My 2 cents on current market situation. And I hope this is appropriate thread.
-Jiten Parmar
twitter - @jitenkparmar
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@ Donald.
The PE is precariously close to the +2SD levels now. Could you share your views on whether the model still stands valid. In 2010-11 it was the FII’s driving the markets, but now its the Indians.
With so much money on the sidelines ( MF’s holding cash & otherwise), will it even be allowed to go down ? Would appreciate your views
Very well said…have been that mode for some time now
i feel this market will suck in most bears before going down, coming on to fundamentals v have gone far beyond justification, but who says market should trade at fair value.One thing is for sure that v are last leg of bull market whether it tops out 12000 nifty or 11000 nifty
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One has good reasons to be cautious no doubt. However the trend is so strong that it will take a lot of effort for the ship to reverse decisively. Yesterday was a weak reversal day and I have my doubts whether the market is ready to give up just yet. Just my thoughts.
Best
Bheeshma
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Last weekend, I attended one of those usual investor meets that are organized by banks, with eminent personalities donning the speaker role. This time, it was by Citi and the speaker was Anoop Bhaskar, head IDFC MF (prior to that he had many a successful year with UTI MF, as fund manager). There were many graphs and explanations…I was at the rear and could not use my camera to click them but I came home and looked at one of the charts, which Anoop had put;
- The 2 SD graph with new norm (after normalizing for the 2008 correction…he said, this is like (cricket analogy) post 2007 era of T20 and its effect in ODIs, where 300 has become the new norm and that too is chased easily by teams !!)…based on his graph, we are near the 2SD but have not decisively crossed it, as it happened in 2008
- This other point was even more intriguing. Anoop related the cost of Govt debt in US vs how the market reacts. He said, for the market to come down, the cost of Govt debt in US has to peak and we are very, very far off from the 2008 levels.
Since, I did not click the exact graph, pl pardon me, if I am presenting something erroneous…Instead of the graph2 above, I looked at S&P and Fed rates graph (which I assume will co-relate with cost of Govt debt)
https://www.crystalbull.com/stock-market-timing/Fed-Funds-Prime-Rate-chart/
in comparison with the peak at 2000, 2008, when the fed rates were 6.54%, 4.49%, in comparison to 1% now…
All in all, takeaway from the talk - we are near the peak but this has still some distance to go and later…during …dinner conversation…my direct question produced this answer 'perhaps '‘19, when the frenzy will be nothing compared to now’"…
All in all, I came away with the feeling that I must be scared but not panicky…for now, I am holding onto the saddle…my MF SIPs are still going in…and the I am doing taking deep breaths each day…that is that
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The government debt point seems to be a case of reverse causality - as a mass flight to quality from corporate paper and other securities to US treasury bonds, particularly long term bonds cause depression in their yields. This applies for the Fed funds rate too, with rates initially low, permitting high levels of liquidity to build up, which the Fed then targets by increasing interest rates to the point where the inflationary bubble pops, at which point the federal funds rate drops rates to combat deflation.
A graph can be very misleading imo in this case, as bond yields and fed fund rates are at best lagging indicators, directly caused by financial crises. Rather, prolonged periods of v cheap liquidity are a great forward indicator of trouble ahead - and there has never been as much cheap liquidity as there currently is in global markets ever before.
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If you see almost everyone is cautious at current levels. Hardly anyone is sounding complacent. Which makes me think that markets are not going to substantially correct any time soon.
They might make a quick dip after a double digit earnings growth! They might make a quick dip after the PE has dropped close to 20 levels! They might make a quick dip after people think that markets will not correct!
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