Nifty PE crosses 24|A statistically informed entry-exit model!

Investing Strategies
565

Though most of my points are already covered, here’s my 2 cents with few of my doubts.
I think this spectacular bull run has started in Jan-2017 and being fuelled by the household money (DII), which is being pumped into market for quite sometime now.

Supporting Facts for bull run:

  • @Yogesh_s already added all the essence for the current bull run
  • Low interest rate in all the fixed incomes, realty is not shining as well. So all the household savings/incomes are entering market. Now even FIIs turning to be net buyers.
  • If BJP wins in the upcoming state elections in December, which will further fuel the market. At the same time this can turnout to be key trigger for correction in this year as well as in 2019

Concerning Facts:

  • Market is not punishing any bad news reported by the company. Ex: Coal India has been asked to pay Rs 20,169 crore penalty, in such cases during a normal day, the market will punish the scrip quite hard and in a bearish day, severly. Such things are showing the market may be in the top.
  • Automobile giants were reporting flat numbers (Hero, Bajaj, even Maruti), on a normal day there will be a hammering, which is missing as well.
  • Piling NPAs, of course this is being taken care by RBI and Central, but any time this may go out of hand

My takeaways

  • As @Yogesh_s and other folks rightly pointed out, one should go by the business (stock), why we are comparing apples with oranges :slight_smile:. So yes, go by (quality) stock !
  • Hail SIP! the savior. I mix SIP with my style, I typically buy 1 lot at first, then the next lot whenever I see 10% or more correction, otherwise buy a small lot, repeat until reaches the portfolio allocation size.

During FY16, everyone out there started saying “we are in 8yrs financial cycle, FY16 gonna be like FY09 (referring China woes)”. Bur that never happened. My question to the seniors, why everyone is forgetting what was the key trigger behind FY09 (2008) crash and why we are keep comparing FY18 with to 2008 crash ? Is the situation same ? Really no!

I’m a newbie, so I really hope some senior members from the other camp will help to understand what might trigger the correction apart from the Nifty valuation (yes, I understand nobody can predict, but that’s what we are trying to do here, isn’t it :stuck_out_tongue: ).

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567

Again, the 2008 crash was led by bad loans, poor credit, Mortgage backed securities (kind of CDO) spree are the key triggers, I’m exactly trying ask what you see such triggers in India right now, that I’m failing to see ?

But sir, the CIBIL thinks otherwise. We Indians are paying our credit card bills correctly :slight_smile: .

568

In India the reasons for low inflation is same - PSU banks had no money. Now that they are being recapitalized, not sure which asset class will they end up balooning.

570

Punting / Gambling Season Over. Back to 80% Cash :slight_smile: Decided to hold on to some gems.

May the markets keep rising and rising and may everyone make bucket loads of money. I will make short term FD’s.

Right now, hamse na ho payega!

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571

@valuestudent - Are you like bull on odd weeks and bear on even ones?

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572

Hi,
India Vix has spiked for last 3 days to touch a 3 yr resistance line. When ever Indiavix touched the resistance line and reverted nifty has rallied a lot. But if the resistance line is brocken there may be an another story. But its now a long time since volatility has been remaining very low and the down ward sloping resistance line can be brocken out any time. In such case of a breakout a volatile period may be waiting us.And when the weak hands are getting shaken out there may be opportunities for value hunters.

India Vix - Nifty
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573

Hi @phreakv6, I am trying to understand it myself.

Words of confidence move me to to become slightly bullish. When I look at facts I turn bearish.

The one fact is, I share it here whatever I am feeling. Lots of people up to lots of nonsense right now, and won’t admit it. It seems it is smarter to have one opinion and keep justifying rather than to say when the mind keeps changing and admit to it.

So why bear… you know it, it is in my previous posts.

So why slight bull; some advise above with good intentions (managed to help me at-least play some momentum)

So why back to bear? :slight_smile:

Yesterday, I sat down and downloaded all the data for Nifty 500 from 1996 onwards. The data is not for 50 companies but the top 500 companies in India. Would you like to see what it looks like? Here you go… so although I was planning to punt mid of November, I changed my mind.

29 PM
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Now what happens is:

We discuss interest rates… check what were the interest rates when these falls happened.

We discuss growth may shrink the PE… check when did growth last shrink the PE from such levels.

We discuss lots of things, we forget it is very hard earned money we are discussing.

When we make money, we think we are geniuses and it is our skill, we continue betting and slowly turn the stock market into a casino level of elevation, and then when it will crack we blame the government or pure bad luck and not our greed. That is how we are as humans. If stocks go up it was our stock picking, if they crack it is someone else. The above is a greed and fear chart. It will not change.

Yes, I also keep getting seduced in; trust me it is difficult to get out when the money is being showered on you like it is. Then somehow I try to find my way back out of greed.

To finish I will say; I have never seen a bull run like this, so I don’t know exactly how to behave. I am trying my best to remain rational and have to keep pulling myself out of the same temptations that we all feel. I am trying my best to not screw up and it takes a bucket load of strength and the fight in the mind is incredible. Trust me.

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574

What you are going through is cognitive dissonance. The ones that are able to keep conflicting opinions without justifying either to be right/wrong and be neither bull nor bear tend to do best in the long run. The idea is to not succumb and take one side just to satisfy the conflict. Neither is it a good thing to justify one view either before or after a decision based on the outcome.

Conflict is good. Keep the conflict going and know that either decision is dependent on randomness. Good thing though is that when it comes to investing, there are lot of states between On and Off or bull and bear and its not a once in a lifetime decision where it is hard to keep the cognitive dissonance going and a resolution must be achieved and is irreversible.

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575

Good analysis, but I presume this is not the beginning of the end of this bull run, though historically I am more wrong than right in my presumptions. Markets run on stories, and right now we have two bearish ones, lack of earnings growth and now, rise in crude. These two are not sufficient to lead to a bear market. So let’s keep checking stories for further market direction.

It’s impossible to call top or bottom except in hindsight, so it’s better to be cautious.

There are old traders and there are bold traders… :grinning:

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576

Sorry to nitpick but what exactly is a bear market? In Jan 2015, we were at 9000 Nifty. Then we fell to 7000 and then came back to 9000 and now 10+. So would you call the 15 months period from Jan 2015 as bear market? Everyone here is looking for a correction not bear market. If people were anticipating bear market, they would have been looking at a different asset class for investment.

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577

A correction of 20% or more from 52 week high is defined as a bear market. So from 9000 to 7000 will be considered as a bear market. Bear or bull, both are in the market to make money. We are just trying to predict the timing.

Bears do not simply switch asset classes as there are learning curves for all asset class. It’s unlikely that someone is an expert in multiple asset classes to switch just like that unless it is gold of Fixed deposit which almost means sitting in cash.

As the chart above shows odds are stacked against the bull this time. Every time PE was above 25 there was a decisive fall which can be considered as a bear move. It’s almost touching 30 now. It looks like markets move side wards between 15 and 20 PE and not when 30.

History may not repeat but the truth is there is absolutely no margin of safety in the market now for a value investor.

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578

There are many undervalued stocks where the PE is less than 10-15
Why worry about the nifty PE

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579

That’s only a technical definition. You call it a bear market, I call it a correction in bull market. In the former case, there is a risk of losing money. In latter case, its only volatility and things are back on track pretty soon. In former case most (retail) people start looking for other asset classes to invest in and start running away from equity while in latter case people are looking to buy the dip.

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580

I think it’s a very unbalanced market with many stocks at extremely high valuations and many sitting at the cusp of turnaround
Many stocks in next 6 months will be multibagger,no matter where the nifty will go

Missed many stocks in last 6 months including 3D + avanti
Dhp,Dhfl,DCM
Bought tracking position in all of them but and then they just shot up like crazy

There are so many hidden gems

Only thing is when nifty pe is high we have to do lot of work to find good ones

When nifty pe is low ,it’s easy to find good stocks

I think effort to find good stocks is the only relevance to nifty pe

581

Then many quality stocks r going through double bear market (40 percent correction ) :joy: then there r sectors going through bear market (pharma) .have said earlier be stock specific n life is easy . But if want super quality at super cheap price ,then, have nerve of steel to wait patiently .Talking buffet is easy , doing buffet (waiting years to buy fav stock) is difficult. One needs to find his own balance between theoretical philosophy and executable philosophy . @SlownSteady mate the comments r generic not pointed to u except the bear market pun :slight_smile: so please don’t mind

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582

This thread has become considerably bearish in last couple of weeks. :smile:, but remember this may be a correction before the final melt up… who knows.

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583

I have not seen melt going up, as it generally melts down :stuck_out_tongue:

@suru27 waiting in the sidelines does not require nerve of steel. It only requires some value what makes sense to you. Only holding on to stocks needs nerve of steel which obviously I seem to lack a bit. Big money is made in compounding which requires one to hold on.

I am not an eternal bear. I am bear only in the circumstances where nifty 500 heads to 35 PE which happened only once in the last 20 years.

I do not know what people call a bear these days. It does not have to be a total meltdown end of world scenario every time. Call it a bear or time correction, I will be much more happier to be in cash on a 25% correction than to sitting on stocks which most likely would have fallen more than 25% during the same time. A fall of 25% over 2 years is more than a 40% fall including time value of money.

Regarding picking on a stock basis, if nifty falls more than 25%, it is more likely that every stock falls. It would be a more opportune time to buy at that time as I do not personally buy index as well.

Yes, there are stocks between 10 and 15 PE now. But these are mostly junks or have stock specific or sector specific issues. For example, Lupin @840 seems like an excellent buy. But I have no way of knowing what kind of storm they are in now and how long it would take for them to get out of it, for example Wockhardt never recovered. This is what I meant by no margin of safety.

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584

When PE falls, it is likely that the stocks that are currently undervalued, fall the hardest. Bear markets tend to spare special punishment for the ones performing badly.

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585

I would like to point out from the Nifty PE chart, that, every time Nifty PE has touched 25 levels in the past, then in the following correction it has not gone sideways, it has headed straight for the low PE bracket of less than 15.

The reason is herd mentality. The “Greater Fools” got themselves into a mess by simply following the herd. They bought high because Herd Analysis is their strategy. It must have worked for them in other areas of their lives, but won’t play out well in the stock markets.

This entire lot of buyers, when they see the headlines/news and find that people are rushing out the exits, and their portfolio is changing several shades way too quickly, they want to get out too. Causing sharp falls. What else are they going to do. News channels lured them in, and will lure them out too.

Therefore, since Nifty is currently at extreme highs, it is very likely that we will see extreme lows in the immediate future. If you are buying now, and your stock has an iota of weakness, I feel you should wait.

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586

Quite a few people are cautious now, on this thread, either based on PE or lack-of-value or Geographical Events; so it must have made them ask ‘what is out of line now’.

In the past 2000 (IT stocks), 2008 (Infrastructure) there had been pockets which had displayed froth, attracted capital like moths to the flame.

In the US it was 2000 (IT), 2008(Housing and Derivatives). It is being suggested, now the excess is seen in ‘risk parity fund’; these funds invest in any asset class which is relatively less risky compared to the current valuations (across other classes) in the market; believe these are mostly designed by Quants and executed by Algorithms.

What, if any, is the frothy sector in India now - where people are blindly going in with the greater-fools theory? Is huge liquidity of MFs into ‘Balanced Funds’ equivalent to its US counterpart?

Please do share your thoughts, if you find/know pockets of froth.

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