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

(Growth_without Debt) #875

Good read here
Let’s focus quality where free cash flow is the top priority so that it can fall less and recover fast

(pkk123) #876

Except for crappy stocks, all stocks that fell 50-60-70% in 2008 recovered in a year or two so I don’t see how you can make that devastating 70-80% loss. You are confused between risk and volatility.

(Chandragupta) #877

Thanks @Donald for this intervention. I think this thread was going nowhere. You have rightly said that it is important not to get fixated on one view but remain flexible.

No two bull markets are the same, nor will two crashes be the same either. My policy is always to hope for the best, but be prepared for the worst.

(Amit Jain) #878

Due to the following reasons, the retail Stock Market investors (DII) are in for a perfect storm.

Liquidity, Sentiment and Fundamentals, as rightly said, are the base of any rally. Allow me to provide my view on each.


  1. USA has made clear her intentions to absorb liquidity back into the US economy from world over, and this figure is touted to be, not in paltry millions or billions, but in trillions.

Therefore, FIIs are net sellers and are hence in need for enthused buyers who are blinded enough by greed to suspense all logic and continue the buying spree even at highest valuations.


In summary,
FII activity in 2017 -44,108.85
FII activity in 2016 -14,356.01
FII activity in 2015 -20,373.69

FED is increasing the interest rates and hence their corporations need to plough their dollars out from our markets and into their stocks and bonds. If they do it haphazardly, they are only going to get a few cents on a dollar. So they have to be strategic about it. They have to set-up a solid buyer to absorb their trillions. A fund house or two wont cut it, they need an entire nation to participate in the madness. Here come in the innocent lambs, the sentimental beings: The DIIs.


DII is a sentimental herd. They leave the dreary job of research and study of fundamentals to the professionals. Hence, we see DII recklessly buying, left right and center, at current ungodly valuations.

All thanks to the media, the sentiment is made and maintained bullish. Modi government coming in with its promises also helps. Modiji is the new face of “Vikas”. He will get there, but it will take a good part of the decade.

I believe, when the purpose is sufficiently served, when the FIIs have sold a meaningful quantity, they will pull the plug on their payments to the media and let nature take its own course.

Consequently, without the Media fed dosage of news of bullishness, within a week the retailers will be falling on each other on the way out, causing lower circuits day after day. Cuz when DII turn sellers, there will be no buyers.

In conclusion, I think Liquidity and Sentiment are the same thing. Once sentiment turns, liquidity will too.


Fundamentals are downright poor. No doubt about that either.


In last six month the EPS growth of Nifty 50 has been a negative. It may improve but not substantially and anytime soon. To make matters worse, Crude prices and GST are not helping.

Finally, we are left with nothing substantial to depend on for supporting the market. Liquidity and sentiment are two sides of the same coin, which is in the pocket of the media, which surely gets paid handsomely to dedicate their expensive air time to bullish news. Once the purpose is served, they will turn. With poor fundamentals and absence of FII led buying, things are likely to get from bad to worse very quickly.

PS: I will continue to bitterly cry “Bear” until I too get paid.

(Amit Jain) #879

Just to rub it in:

(Amit Jain) #880

Observations From the chart

  1. FII have not put the foot on the pedal as far as selling goes. There is much more to sell. FII net figures are way above the zero line

  2. DII have appeared to put in all they have. The numbers are way above 2008 high. Assuming that the retail participation has not drastically increased.

  3. The crossover of the two lines has happened recently. Is it a sign of inflection?

(Chirag) #881

If you consider the 3 big FII sell periods – 2008, 2011 and 2015 – during all 3 of them NIFTY had a 20% plus correction.

But the tables have definitely turned during last/current FII sell period of 2017. So it might seem that our over dependence on FII money and the ability of FIIs to move the Indian markets at their whims has come to an end.

(Arun S G) #882

Domestic retail participation has indeed increased drastically, by about 70%.

  1. In 2008, Mutual fund inflow was 107,000 crores.
  2. In 2017, mutual fund inflows was 178,000 crores.

The real picture about FII vs DII is more complex when considering the FIIs, because exchange rate was 40+ during 2008 and now 50% lower. In terms of rupee market capitalization, we are now more than 3 times the value in 2008, at more than 130 lac crore rupees now, versus about 40 lac crores back in 2008. In USD terms, the growth may be much smaller due to rupee depreciation. In fact we apparently crossed the 2008 highs in USD terms only around April/may 2017, so the overall return over a 9.5 year period may now be only around 20% for FIIs.

(Amit Jain) #883

(Refer to the chart above)
In 2008-09 crash, FII were stiff sellers, shown by a sharp down slope of the FII line in the period, and the market crashed. Then, DIIs didn’t matter, although the volume of DII buying was more than the FII selling.

Applying the same observation to 2016-17 period. DII line has a steep up-slope, showing their strong and clear intention to buy. However, FII line had not developed a clear direction or slope until just before Sep-17.

Hence, One could conjecture that the FII line has now formed a clear negative slope, denoting that FII have now started selling.

Furthermore, this line is likely to go much lower towards the zero line. Showing, their clear intention to sell stock, which wasnt the case in 2016 and most of 2017. Probably because then the rates werent high enough for them to sell, and nor was the buying the volume. But now they have both.

Again, DII buying strength may not support the market, like in 2008-09.

(pkk123) #884

130 lakh crore is 2 trillion USD which is roughly the size of our economy. In 2008, Stock market capitalization to GDP ratio was 1.7 or 1.8 at the peak. Which means we still have lots and lots of room to grow. A 20% correction can come any time in a world where mad men have fingers on nuclear buttons but this so called bubble will grow much much higher before it bursts.


In my opinion, comparing market cap to GDP ratio may not be correct approach. There are a huge number of traditional companies and start-ups which are unlisted. It may simply mean that there has been a tremendous growth in non-formal economy or unlisted companies.

(Amit Jain) #886

This is what BSE long term chart may look like for FII who would have to sell Dollars, and Buy Rupee to invest in our stock markets.


Yupe… It has just reached 2008 highs in Dollar terms. Previous tops tend to act as strong resistances. Going ahead Volatility is likely.

(pkk123) #887

I understand that listed companies do not capture everything but its still a decent measure IMO.

(maheshkumar) #888

possible headwinds

the central banks tightening globally,

Rising crude oil prices

geo-political risks

over-bought position in India, China and other emerging markets

(newone) #889

View from Mr. Kotak:

(pkk123) #890

Ha ha. Banksters no longer getting cheap CASA funds. They are expected to cry.


“The only way you can mitigate your losses is by getting almost entirely out of financial assets,” Damodaran said. The problem, however, is that “the cost of staying out of the market is often greater than whatever you might benefit by staying out of the next crash.”

“The real question you have to ask yourself is: Is it worth it to actually reallocate your portfolio to try to avoid that correction when you don’t know when it will come, how it will come and what form it will take?”
“I have never been able to make that prediction solidly enough to reallocate my portfolio,” Damodaran

(Amit Jain) #892

You would never find a celebrity come out openly and say “Now it is alright to completely exit the market”. Almost as if it is NOT allowed, or as though there will be adverse consequences for the celebrity.

(nil_71) #894

You should not invest waiting for correction. You can never time the market

(manivannan.g) #895

In the last week of Sep-2017 midcap (sensex midcap) was corrected about 5%, first week of Nov-2017 it was corrected around 3%. But where’s it now ? it went on and on. :slight_smile: IMHO, don’t time the market, If a specific stock you are looking for corrects more than 10-15% (without fundamental changes) add more, that’ll be ideal.