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

(manivannan.g) #982

Thanks to the LTCG the much anticipated correction is here (I think this mood will be there till 31-March) !! lot of good scrips are corrected. Scrips like PCJ are down by 50%. And thanks to some small caps which are in 5% lock, protects from volatility.

(Akbar Khan) #983

Dumping before March 31 will be beneficial only if prices are higher than the high price of Jan 31.

(Amit Jain) #984

Do not underestimate the bears. They will probably steal the show…

Nifty median PE of 17 to 20 is bound to reach. At EPS 400, this comes between 6800 and 8000.


Amit, can you share any link where we can see the latest EPS of Nifty?

(Amit Jain) #988

SE website is publishing PE for Nifty 50 as 27.48 at 10600…

10600 / 27.48 = 385

(manivannan.g) #989

I partially disagree with this. Yes, there’s a downside which can be seen till 31-March, but every dips are being bought into. The current scenario is like the demonetization situation. The graphs are evidently showing that dips are being bought into.

About two weeks back, i stated that I won’t be making any fresh investments, as I was waiting for this day.

I consider the Nifty PE only after all the Nifty50 companies results are out. Instead, I take the PE of my own portfolio and see if its overheated, trim the position, not exit. I see 9800 range is possible, but expecting almost half a cut from the top is unreal for me. At current situation, people are confused what to do ! So, let this situation calm down, instead of 100%, I’m happy to take 90% with both hands.


There’s blood in the streets

(Harsh04) #992

I think most of us expected a correction and most of us agreed that the Nifty is overvalued.
The recent SEBI circular reclassifying the mutual funds added to the MF’s buying largecaps and added to the rally.
Such deep corrections are a given thing when the markets rally very fast.

although i believe such corrections will be bought into, I donot see Nifty making new highs now. The rally is almost over with the uptick in earnings almost already priced in.

(vaibhav) #994

This is a very useful relation @bheeshma
10yr Bond yield + 5% = Earnings yield of the index + GDP growth
I was thinking why is it not say -
10yr Bond yield + 2% = Earnings yield of the index + (GDP growth)/2

Because 5% risk premium is too much in my opinion plus I want less weightage for gdp ‘growth’, hence divided it by 2(one can divide it by 1.5 or whatever number instead of 2)

(Bheeshma Sanghani, PhD) #995

Another way to look at it is that the cost of capital - growth rate = earnings yield or the capitalization rate at which earnings are capitalized. In standard valuation formulas that is taken as the residual value.

So cost of capital = earnings yield + growth rate

The cost of capital as we all know is the risk free rate + equity risk premium thus it stands to reason that

Risk free rate + risk = earnings yield + growth rate or in other words the return on equity of the broad market index should be equal to the cost of equity and any excesses will be rapidly adjusted upwards or downwards as the case may be

The idea is to take out the guesswork and try and have a sensible view. I think bond yields were 6.2% about 8 mths ago and the expected GDP growth was 7%. That warranted a PE of 24 odd - which is what happened. But now yields are at 7.6% so clearly that is weighing heavily here.

(Mahendra243) #996

I dont invest in nifty but this correction is taking all our PF’s down
So can this correction continue until we see nifty in 4 digits?
when we can start latching up our stocks? added a few but seeing the screen red takes real gut to add more…even when i am sitting on huge pile of cash

I know timing is too impossible to none
Any views pls?


Does anyone see a possibility of the FM removing the LTCG idea?
Government’s hope is to generate 20,000 crores in the first year as LTCG income. Hence, the profits to the investors should be more than 2,00,000 crores by Mar 31, 2019 - election year (as the tax is 10% and individual gains upto 1 lakh will not be taxed). This gain of 2 lakh crores should be made based on the cost price at Jan 31, 2018. But if market falls like this, how will the 2 lakh crore gain come from which LTCG @ 10% can be levied upon? More importantly, how will they achieve their divestment target, if market falls like this…

(pkk123) #998

That’s for money already invested on 31st Jan, 2018. For fresh money, any gains will be taxed. So as long as fresh money is coming, govt. has no problem.


That’s the whole point. If market sentiments are upset and with so many risks this year due to state elections, how can one expect a capital gain of over 2 lakh crores from Apr 2018 to Mar 2019 for LTCG tax to be at twenty thousand crores? In the previous year when the markets ha risen a lot, the total capital gains as per govt is 370,000 crores. To make a gain of 200,000 crores next year, the rise has to be equally sharp as the base is higher now.

(pkk123) #1000

No. Market can fall 20%, then rise 25% to get to the same price and still some people would have made gains. Why does it have to rise further? Govt. may not get their desired number but if you flip it and say all gains should be allowed untaxed, that’s what govt did not want to allow.

To further add to it, govt. is not getting anything from gains made till 31st Jan so why should they care about protecting these gains?


Technically, the markets can fall 20% and then rise OR just rise 20% from current levels. But, practically, not sure if it can happen every year. And imagine if markets fall 29%, will the retail investors still come to market and invest in MF etc? That will be a huge sentiment negative.
My point is: I am not against LTCG. It is just the timing. Why can’t it be announced 1 year earlier before the implementation? When people are well informed, volatility will not be there.
Also about their divestment plans, if markets fall 20% and rise 20%, the gov’t holding value of the companies will remain the same, so how do they achieve a profitable divestment target?

(Nolan) #1002

Though I like your suggestion, but this government has explained its principles of implementing economic reforms using an analogy of a doctor operating upon a human body. So, Modi says that a doctor will not operate upon the body until the vitals are in check and all other physical parameters are functioning normally. Similarly, this govt has initiated reforms exactly when they thought the economy was in its prime phase. That’s how they intend to make quick recovery after the temporary hiccups of the reform process. If you consider their decision to bring in LTCG taxation, one must keep in mind that the markets had given phenomenal profits in 2017. Those who rode this wave would presumably be sitting on decent profits. And the portfolios (generally speaking) would be healthy enough to take a 20% or so kind of hit. However, in the long run, there is still a consensus that corporate earning and economic growth is on an upwards trajectory, so recovery can be fast. But, going by your suggestion, it is nearly impossible for even the govt to predict the macro conditions one year in advance. It may have led to an even bigger disaster had they announced it last year, and the tax reform would have collided with another unfortunate event like a war or maybe a loss for BJP in Gujarat, which may have compounded the adverse impact upon the markets.


On the other hand, a sudden annoucement when the markets at such a high level (the main point of discussion of this thread - Nifty PE above 25) is sure to cause a knee jerk reaction like it did today. I am sure many small, inexperienced investors would seen their portfolio shrink and tried to exit at a loss. So the investors lose and the government loses as well. I don’t think the govt should be looking only at their gains to make such announcements. If it was announced well in advance, everyone would have been prepared adequately. Just the announcement of a taxation plan in advance is not going to turn a bull market into a bear one. They could have also sugarcoated it along with a better economic reform plan.

(Deepak Venkatesh) #1004


The valuations cooled off a little but no where near the comfortable zones. As per @jamit05 to reach PE of 22 would require a tremendous correction. At current nifty earnings that roughly 15% more correction (hopefully the earnings keep increasing) to reach 22 PE zone. I guess we will see some more of it.

Also this was probably the largest drop in the last 14-15 months I believe.


p.s. the US yields have sky rocketed. All things happening at the same time :man_facepalming:

(bharat.jain) #1005

Guess law of averages is too strong