I read somewhere that by 2008 there was not much contribution of consolidated earnings but since then the number has gone up (again AFAIR upto 30%) so if we plot the consolidated numbers, 2008 peak and before that should appear the same but the current valuations should appear cheaper. Hence I used the word irrelevant. I should have chosen a better word. Sorry about that.
If we analyze carefully, P/B has spiked to around 6 in just one bull market, 2008, may be due to extraordinary earnings growth between 2003-2007. In all other bull markets like 2000, 2010 etc. markets have peaked when P/B has reached between 3-4.
As long term historical data of NSE is not available, I tried S&P 500 historical data. There too only in 2000 P/B has reached 5. In all other bull markets, tops occurred when P/B was around 3-4. Actually in US markets, 2008 peak occurred when P/B was right at 3.0.
@pkk123 Even if lots companies make money through the subsidiaries, they should distribute dividend through the mother ship, right? Dividend yield right now is near the all time low.
We all want there to be bargains, but no one is eager to endure the price declines that create them. - Howard Marks. 
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Dividends are low because earnings are absent. Only promises and prospects are floating around. Due to low Earnings, coupled with euphoria, PE has become high. Markets are clearly very expensive now.
Govt is causing this euphoria. See the boost to the banking sector. That money has still not doled out, it is just a proposal. Many such proposal have been rescinded in past⌠but at least temporarily the market got euphoric.
If this charade is election related, then the markets will surely wont see any fall till Election in 2019⌠but after that, god help!
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I think the data published by NSE is based standalone and yearend results but I havenât seen their actual methodology so my understanding could be wrong.
@diffsoft does a great job of meticulously calculating Nifty PE based on TTM consolidated profits which is the correct method of calculating PE ratio. As per his calculations (available here) Nifty PE as of Aug 14 was 22.83. Nifty on Aug 14 was trading at 9794. Nifty 50 EPS as of Aug 14 works out be 9794/22.83 = 429. Assuming a 3% sequential growth in EPS, Nifty 50 EPS as of today is approximately 440. Nifty 50 is trading at 10334 so based on this calculation, Nifty 50 PE as of today (Oct 31 2017) works out to be 10334/440 = 23.5 against a published number of 26.77.
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âNiftyâ has changed in last 10 years. I think one would need to examine the constituents then and now. A higher knowledge based or moat companies now would skew the valuation higher. And its not necessarily a bad thing. Knowledge or moat based companies typically are expected to have higher staying power.
Hi @arunsg
Could I request you to help me that then how does that justify the post on the nifty 500 from Devaki? Seeking all understanding to not make a mistake being bearish since you guys have much more understanding of the bigger picture. Did take @Yogesh_s advise and used some courage over the last 2 days to take buy action on some extremely high convictions. More courage will need more advise 
Parameters for Nifty inclusion are all technical in nature, like floating stock, liquidity etc. Fundamental parameters like profits, margins, growth, cash flow etc. do not figure anywhere. Sector wise break up of the Nifty has no relation to the real economy or GDP composition. Over the years, changes to index constituents have become more and more frequent. Better performing stocks keep getting added and underperforming stocks keep getting weeded out. This creates an inbuilt upward bias to its performance. Whether this is intentional or just a result of the selection methodology I donât know. However interpreting Nifty is not easy, most standard interpretations are probably incorrect.
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Value student, I believe you were more than 90% in cash and I was impressed by your conviction of holding on to your conviction and wanted to see your conviction at higher levels of Nifty⌠Just taking you as a reference, I have a feeling that psychology of even value finders are changing⌠Will be interesting next one yearâŚ
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Dear @paraacbe
I donât know what to say 
Well, honestly, the truth if it does not bother anyone my saying so, and please anyone may laugh at my making predictions 
I think we will see a black christmas, and I will not have a single penny invested before then.
Quite frankly, results season is on and I thought of punting on some very high convictions where I think the results will be great and I am just punting. I got the conviction to punt as so many are still so bullish so I thought why not.
To be on the safe side, I picked up some punts where the fundamentals are a 5-10 year hold and even if I get jacked in trying to play the results game I donât mind holding on.
The percentage invested is 40 odd percent. Most of the portfolio is still cash.
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Seeing this thread,the famous quotes of Peter Lynch comes to my mind
"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.âĂÂ
"I canât recall ever once having seen the name of a market timer on Forbesâ annual list of the richest people in the world. If it were truly possible to predict corrections, youâd think somebody would have made billions by doing it.â
My theory as an investor( i donât consider myself as an value investor yet),you are looking for value in a stock which is growing and if there the index is trading at 25 times PE,30 times PE will it matter?
You find a good story trading below the value ,would you rather buy it now or rather wait for the market correction which may or may not happen.It sounds easy but very difficult to practice.
One question i ask myself after i buy something now is will i hold on to this story if its 40-50% down from todayâs price and if i can hold the story for next 3-5 years and if have the convection,i go out and buy.
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George Soros.
-Please know that all will be clear to you or to me only in hindsight, right now they are only decisions. I kept quite a lot of cash when everything was going well and magically demonetization came around. Opportunities come around.
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@valuestudent Are you punting on stocks which you had sold or these are new set of stocks. You also mentioned you have 10 years conviction for these names. Such a list will be pretty short I guess.
Hi @nav_1996
Some I am punting on new and some on which I buy and sell multiple times.
The entire list of good stocks is over a 100 in number. The highest conviction from that list has around 40 plus names currently. The best part of being an Indian investor is we have 20% of the worldâs population. If we can invest in India and Indians we will do well. That does not mean go and pump everything at a market PE of 27
Although, I am not qualified to do so, I will start a thread on what a new investor should do. It helped me and I hope it helps anyone else.
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Wow! You have a 100 stock list and you were sitting out because you find all of them expensive then I would say you should stay out. If there is no value anywhere then better to stay out than punt and lose.
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@pkk123 . I have an additional 130 more if you want it. Either every company is a chor or it is simply overvalued at a point in time.
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I think NSE uses trailing twelve months PE, otherwise how can one justify PE of 26.77 on 30 October and 26.49 on 1 November as markets have risen around 80 points in the mean time. Anyway calculation of @diffsoft seems more accurate.
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âIs it a good time to invest in stocks?â is the most asked question these days.
To answer that question I decided to get some numbers and clarify my thought process.
So here are the numbers. These scenarios deal with the 2008-2010 period when the markets touched their extreme highs and lows.
Scenario 1 (Bulk investing at highs): If someone would have done a bulk investment in NIFTY in Jan 2008 then over the last 9 years their CAGR returns accrued till October 2017 would have been 5.98%
Scenario 2 (Bulk investing at lows): If someone would have done a bulk investment in NIFTY in Mar 2009 then over the last 8 years their CAGR returns accrued till October 2017 would have been 18.53%
Scenario 3 (SIP starting at highs): If someone would have started a daily SIP in NIFTY from Jan 2008 till Dec 2008 (1 year period) then over the last 9 years their CAGR returns accrued till October 2017 would have been 10.85%
Scenario 4 (SIP starting at lows): If someone would have started a daily SIP in NIFTY from Mar 2009 till Feb 2010 (1 year period) then over the last 8 years their CAGR returns accrued till October 2017 would have been 11.69%
(These scenarios assume, no other investment is made apart from the time period mentioned)
Here are some observations:
- Variance of returns in scenario 1 and 2 is 12.55 points. So, If someone can time the market perfectly then there is definitely a big difference in asset appreciation.
- Variance of returns in scenario 2 and 3 is 0.84 points. So, if someone is doing an SIP then it does not really matter if they are starting at the high or low.
Conclusions:
- SIP is the best way for entering the equity markets for most people.
- While investing in SIP mode, it does not really matter if the market is at a high or low.
- For best returns investors can have hybrid model where in, they can have a SIP mode going and for every 10% fall in NIFTY they can supplement the SIP with some bulk buys.
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While not many can time the market, people can still demand a margin of safety, stay away and wait for the right time (in cash). Thatâs exactly what I have decided to do when I read here that the market is in peak PE. I am 100% cash (cashed out in the last 2 days as the above posts convinced me to) and looking for alternate asset classes.
I will wait for the opportune time (less than 20 market PE) while aware that market can even double from here. Happy to let go the upside for the correct MoS. I also read the right picks would give excellent results even in bear phase. But I definitely do not think I am as much talented to pick such stocks.
Behaviorally, I could also sense that even smart people started justifying crazy valuations like P/B of 5 for NBFCs and PE of more than 50 for consumer stocks with growth rate of less than 10%. Add to that people are ignoring signals like high slippages even for a Bank like HDFC (which I have never seen before). Market is also ignoring high divergences reported by Yes Bank and Axis Bank. I am also loosing hope for any miracles by the current government as so far we have mainly seen only pain (which the market is ignoring again). Seems like a recipe for disaster.
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The main point that I was trying to make is, that investors doing SIPs donât need to worry about the market highs and lows. They should just keep doing SIPs.
Of course people who do want to make a bulk investment need to worry about valuations for the margin of safety. This is shown by scenario 1 and 2.
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This is a good study, thank you for sharing.
I would like to make one more observation. While you have taken different starting points, the ending points are all at the peak. You will get different results if the end points were not at peak. The SIP returns may probably go below fixed deposit returns. Even now (at peak market), I feel SIP returns of 11-12 % do not justify the âequity risk premiumâ. Therefore timing the market seems necessary to generate good returns which are worth the equity risk.
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