Tracking Nifty PE is of paramount importance for a pure Index investor. For others, it also serves a purpose.
Ketan Parikh follows a concept called “Speculative Growth”. When there is too much of it in the market, it is “Frothy” and the long investor is best advised to let it settle. Essentially, if Nifty PE is High means people participation is high in the Entire market, not just the Index. We are currently in a Euphoric phase, a few stages ahead of plain 'ol “Frothy”.
This is important for me because I believe it is the biggest SIN to buy high. I may miss opportunities, but the habit of buying high will spell doom in the long term.
Some investors are able to predict a company’s future growth as they are closely in touch with its industry dynamics. Much to my chagrin, I do not find myself in such a position of advantage. Hence, have to resort to grosser tools.
To me, a favorable environment for investing is when there is a general dislike for the markets. This happens when Nifty is hovering a little lower than average. At that time, especially the non-Index scrips show a sharp investor neglect in their share price. There have been very few such instances since 2003, at least not prolonged ones. But, this is likely to change in the near future. That, I believe, will be a proper opportunity to make investments.
As a long term investor, now is clearly a time to book profits. Not to add to positions.