correction in the above----the upmove began on 25 may and not on 25 oct as mentioned earlier.
We need to take in the picture the FII flows. If it reverses with the the stronger dollar then any of the support may not be of any importance as historically we have seen the FIIs selling gives a roller coater ride to the nifty. We may see short term pull out of FII funds on the back of somewhat better(less gloomy)picture in US. The immediate support is at 5820 then at 5750. Well this is not my area to tell you the technicals.
With the correction of around 1000 points in the sensex in last two days it seems the fat is in the fire and there does seem to be a lot of nervousness around.
While in the earlier corrections there was not too much wrong fundamentally with India story (and probably that is why the markets bounced right back), this time it seems inflation and high crude prices could start acting as some sort of headwinds.
25th Jan is slated to be the date when RBI is likely to announce interest rate hike and we have still 2 weeks to go and markets seem to be getting jittery.
My guess is the make or break level should be around 18500 for the longer term investors below which I think one may have to re think the strategy.
I see a lot of stocks having head and shoulders topping patterns-- strong ones with market fancy like mannapuram, titan, srei etc and if these were to achieve their pattern targets, my guess is markets would correct much more than anticipated. If that happens, we might get some wonderful opportunities to pick up the old favorites again at mouth watering levels. Trick seems to be able to stay in partial cash to make full use of the opportunities which might come around.
Fingers crossed.
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From the levels of around 21100 to 17300, we have corrected by around 3800 points on the sensex. The froth seen earlier seems to have evaporated and fear seems to be the buzzword with a lot of technical guys coming on tv and predicting confidently that the level of 4800 on nifty and level of 16000 on sensex looks like a given.
But a look at the small and mid cap stocks shows that we might have overdone the correction in terms of the cuts in small and midcaps. This does look like a place for the start of a countertrend surprise rally, which might catch a lot of market participants by surprise.
Key monitorables remain the budget and its provisions and movement of the crude prices.
Views invited.
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As mentioned in previous post, countertrend rally has taken nifty to surprising levels of 19000 plus. Now there seems to be some stiff overhead resistance around the 19500 odd levels where there might be a pause/end to the current rally. I think its a good time to be in some cash for opportunities which might present later.
In the above post, 19000 should be taken as level of sensex. My guess nifty at 19 k might take around 10-15 more years.
There may be a pause to the rally/shallow correction as rise has been too steep,but deep correction seems far off as heavy FII buying is boosting the sensex. We need to watch the FII flows which is offsetting profit bookings by the DIIs. I feel the next rally may happen in the small & midcap stocks as they have taken a harsh beating.
Manish Vachhani
For interested people, the current link is -
http://nseindia.com/products/content/equities/indices/historical_pepb.htm
Posted by Donald at September 13. 2010
>http://www.nseindia.com/marketinfo/indices/yield/histyield.jsp
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I use the difference between PBV and DivYield as an indicator for how hot the markets have become. I am attaching a plot for PE, PBV, Div Yield that I obtained from NSE data
Attaching my analysis of the historical Nifty levels. You can make your own insights:-
PS: By hoarding cash I mean refrain from deploying fresh money into equities and not selling out from existing positions.
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I read this (1st post and other subsequent ones I glanced through) and the data is incorrect. Thatâs because this NSE source gives you standalone PE ratios and related measures. Thatâs incorrect because you need consolidated earnings to know how much your stock has made for you.
There is really no free source I know that gives you consolidated earnings of Nifty. I compute it for my analysis and am attaching it here (unformatted so apologies in advance). It shows that as of 25 August (and Nifty hasnât moved much since) the trailing PE is 19.43. NiftyQ1FY16.xlsx (21.9 KB)
Over the years as firms have expanded the gap between standalone and consolidated earnings have widened. I wrote about it in alphaideas here - A company should be known by the companies it keeps. So looking at standalone earnings may be deceptive.
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WowâŚthanks for highlighting this Krishnaraj 
I understand you said there are no free sources for getting the consolidated earnings. So can you share any paid ones?
Bloomberg or any such terminal will give you that. Some brokerage houses may also give you (I know Kotak Institutional Equities does)
We are all talking of the PE of Nifty above 24 is alarming ( completely agree with that )
Do we also consider the Mcap/GDP ratio above 100% is also one of the tool to be looked into.
In 2007 when Nifty PE was at ~27-28 Mcap/GDP ratio was 125%.
But that too is confusing because when we see currently many countries are trading above 100% of Mcap/GDP ratio.
One more query if someone is interested in trading ( because we need money to invest right ? )
What do we generally look at RSI, Bollinger band and moving average ( i generally use )
I have one query is RSI for spot Nifty and future Nifty is different because later includes Open interest in calculation.
ThanksâŚ
I think nobody can predict exactly when the market will crash.
As I said in my post - Just a few pointers as to when you may start accumulating cash instead of taking fresh positions in equity.
Yes, MCap to GDP is also useful to look at. But canât be looked at in isolation, need to combine with other factors as highlighted above. Another point to consider maybe - net profit margin of Nifty companies. Historical analysis of profit margins will tell you they should revert to a mean if they are at historical highs because competition will never allow companies to garner huge/easy profits.
Another point to consider - as Krishnaraj has highlighted that these P/E numbers are not consolidated earnings number so the current number is actually below 20.
Technicals - Have very little knowledge and donât trade. Absolutely no idea on Futures / Spot trade, etc.
Madhusudan kela speaks of how quality of index earnings has got better over time due to weaker companies going out of the index and being replaced by stronger companies.
By extension, past PE data/trends may not be true reflector of current valuations of the indices.
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I do not think that is correct, in case of the largest Index, i.e. Nifty. Nifty constituents had delivered on an unweighted basis negative trailing twelve month earnings growth as on June 2015. There have been recent replacements in Nifty that did not deliver, for instance United Spirits, but that was soon replaced by an older constituent that was brought back, Zee Enterprises. Again NMDC, a recent entry was replaced in Sept 2015.
In other words there seems to be a higher chance of a recent addition getting replaced whereas older ones remain. The ones that got removed had poorer results than the incumbents. This would not have happened if the quality of earnings were improving.
Warm regards,
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Hi Gurjota. Nice inferences. I was too trying to do similar analysis.You might consider trying a new ratio (P/B)/(Dividend yield) and plot it along with nifty historical price index.
What I found was
- When the ratio is greater than 4 (or 5 to be aggressive) its good to back out of stock market (and sit on cash probably).
- When the ratio is less than 1 (or 1.75 to be aggressive) its good to get back into the stock market again.
Your first two points actually captures a lot of it. I was trying to convert it into a single variable.
Would like to hear your views on above.
Also, if you could upload the raw data or give me a working link of that data source, that would be awesome. Currently the only option available is the nse website where I have to download each yearâs data separately. Also its server restricting me to download csv files after collecting 1999,2000, 2001 data.
Regards,
Nishant
I need to add few points
I agree for the fact
- P/E
2.P/B - Dividend yield
Plays a important role in determining the market condition and when to enter/exist.
But I am pretty it is does not give the complete picture.
Sorry, I didnât mean to criticize but I wanted to give the suggestion.
Using Psychology
In fact, it suffers from
1.single cause --> single effect bias.
2.Confirmation bias.
3.Causation /Correlation bias.
P/E or P/B or dividend yield as a whole is wrong way to looking at market and may not be correct even in first order.
Let me put a small puzzle to make it interesting 
How much to pay is determined by P/E but we always compared it with what ?
If you get the answer, you will know for sure why model wonât be correct.
Of course it doesnât give a complete picture. But they are good indicators for a common investor who has limited time and resources.
Also, no one is claiming its a causation. In fact we are capitalizing on the correlation fact itself. When things are highly correlated, we donât really care what is the cause. If dividend yield is correlated to stock prices in long term , we donât sit down and discuss the causal factors. But a low dividend yield from nifty index does indicate that market valuation is pretty stretched and one should be cautious about further investment in the market. So these metrics are pretty solid heuristics. Who cares about the causes?
Also, regarding your confirmation bias claim, this model has been cross validated at different time windows and its pretty much evident that whenever the dividend yield has fallen below 1% and stayed there for more than two weeks, stock market has indeed come down from that level. We are not claiming that this is the only reason for stock market to go down. There could be several others. We are just discussing few of them.
Regarding your question, it would be great to know the answer from you instead of us scratching our heads.
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