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

(VP_amit) #1022

Friday 2nd of Feb was murder for Nifty and Sensex. With Dow falling more than 660 points later on Friday, Monday, 5th Feb could be massacre … brace up my friends. Discussion has moved into the right direction now by @jamit05 and @deevee to see when should we invest again. Great opportunities to invest will come … question as always is how far will it fall.

(Amit Jain) #1023

Prediction ALERT: Nothing consequential, like Lehman, has happened that market should crash. There is still plenty of bullish sentiment left. This correction will be bought into.

Another up-leg is in the offing. How the market treats this up-leg will be important.

I feel the rates of Jan 31, 2018 will be the highest rates for the long term. In one previous post I have shown the logic, but admin choose to delete the post. It wasn’t offensive, just opinionated.

(Amit Jain) #1024

Having focused my efforts in this direction, I see that it is not as easy as it appears. Several questions need to be decisively answered. It is a job of a well informed group of people. Moreover, there are several mental and cognitive biases that come into play.

(Deepak Venkatesh) #1025

Hi Amit

That is why I had put the word ‘think’ in italics :slight_smile:
Since I have not done index investing I only have viewed it with utter simplicity which perhaps is grossly incorrect when it comes to execution.

In other news.



It is not a necessary condition for a crisis to happen for stock market prices to correct significantly. As per George Soros’ theory of reflexive, falling stock prices can lead to a crisis.

(Amit Jain) #1027

I do not see stock prices going vertically up and then speedily down. It was going up due to a strong bullish sentiment. If not more, then atleast a residual bullish sentiment should prevail.

Soros spoken good logic. But for people to lose hope, and become morbid, a few rallies have to fail. It will take some time, for the bullish spirits to be completely exorcised from he minds of people.

(Amit Jain) #1028

My intention was to indicate the need for us, individually and as a group, make focused effort to strategize. Wherein, at least make sure that we conver the important bases, to ensure that one doesn’t make major mistakes.

For example I see index portfolios on this forum, which have as much as 30% exposure to one single scrip. How is that index investing? Why is that person referring to the index PE, when he has such a large skew. He is completely decoupling himself from the dynamics of nifty bell curve. That, imo, is not index investing. It may succeed, but not in the way we foresee it.

(Kumar Saurabh) #1029

My latest blog. Though it is not directly related to NIFTY overvaluation. Seeing the market traveling back in time and look through eyes on data till 31st March 2017, there are some points which connect dots between the bulls and bears . I have tried to be as less biased as possible and let the data talk. @Yogesh_s @jamit05 @Mridul @deevee @devaki.tripathy would be glad to know your views and please highlight of any major flaw in data/analysis :slight_smile:

(phreak) #1030

@suru27 - This is phenomenal research and analysis and is the best thing I have read all weekend. I think the conclusions you have drawn are quite accurate and I concur that D/E will hit a trough in a couple of years and once demand revival happens (through the infra, road spending) the existing capacities will hum along and generate better return ratios and justify the valuations.

Your risks of commodity prices are also quite apt and also the conclusion that microcaps are doing well at present because of low commodity prices - You can see this in companies like Himadri Chemicals. I too doubt the ability of these microcaps to pass on raw material prices and sustain margins if there is a rise in commodity prices.

Looking forward to your next piece on demand revival. Keep up the good work!

(onlish2014) #1031

Loved your thought process and deductive presentation. Do keep writing!


Excellent write up. Eagerly waiting for next section


This is a great research. The same can be also be concluded by looking at historically high PEs vs median PB levels.

If we normalize BV by dividing with it’s asset turnover, I believe we will have a better sense of valuation across companies in the same sector.

(Devaki Nandan Tripathy) #1034

Truly remarkable analysis, would love to get more of it. Please keep writing.

(blueeyedinvestor) #1035

Brace yourself folks…It’s MAYHEM…US market down 6% … biggest single day drop in the history …VIX shot up to 32

(Susindar) #1036

Almost prophetic posts above regarding the peaking and eventual fall getting nearer. Unfortunately I assume some of us have not heeded to the advise due to FOMO. I could only save 20% in cash. Brace yourself and wait in sidelines for the next 18 months which is how long a bear market is supposed to last!

(Mahendra243) #1037

One small correction and how you happened to talk about bear market? Bear markets happen when there is recession… global growth has been picking up well…the correction has something to do with inflation getting back to USA much faster than investors might be excepting…which will force fomc to raise rates faster

(Amit Jain) #1038

How the market treats the next up leg will be pivotal.

(Amit Jain) #1039

So it isnt continuation… its a peak.

(Susindar) #1040

Whether it is a small healthy correction or bear market, what I meant was the posts here suggested this for a while and this is something most value investors have been waiting for. Having said that most of the midcaps I hold have been down by 10 to 15% already in the year and it would easily be another 10% down just today or this week. So it is more than a small correction in my opinion.


When we talk about moving to gold and managing equity / cash balance based on market valuation, its not just about managing returns. Its about being able to sleep at night when crashes like these happen. In the end, “focus on earnings, quality business only”, always-fully-invested folks may earn the same or more returns in the long run, but it helps novice investors stay the course and not experience “deer in headlights” syndrome when events like these happen.

Yes, the panic has set in…VIX moving above 30 has historically been a great time to buy.