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

(Amit Jain) #1337

Yeah PE multiples are bad, nonsense. These people only focus on cash flows.

And the same paragraph lead towards crisis.

(Changu Mangu) #1338

Market Musings.

What a change from the euphoria of 2017 December to 2018 December. Then it was FOMO and now it is close to fear. Next comes capitulation.

Last year this time, all the talk was growth, stocks hitting new highs and believe in India.

Now today, it is Donald Trump Trade Wars, Inverse Yield Curve, Fed Tightening, RBI vs Govt, FII Pullout, Rupee vs Dollar, Upcoming National Election, Global Recession & Contagion Fears etc etc etc… Now not many believe in India or any global stock market for that matter :slight_smile:. I do.

I think the time is very very close for supplying Cash and Courage.

We make most of our profits buying great businesses at decent valuations. They may go lower than our purchase price in the short term but that is the price for long term success.

Just thinking and will probably be wrong and I am a novice and not experienced and not SEBI registered etc etc - the fear is creeping in, so the prices close to capitulation for many stocks and on an Index level the base scenario seems to be around 9200-9500. I can handle a 10 odd percent drawdown so can I deploy close to 10K? Yes.

Selection here is very important as some are still very expensive. SIP / DIPS and decent diversification is the strategy. Some will give returns in 12 months and in some earnings will grow and catch up with valuations in 2-3 years and will give return thereafter.

Time to keep calm and start dipping in the toes.

And, just don’t buy total junk.

(Amit Jain) #1340

If 9500 happens anytime soon, it will still be 23PE. Individual scrips may correct deeper, but who knows what’s normal. Look at Sun Pharma, a year ago who would have thought that the price is filled with utter muck.

When Index is normalizing PE wise it gets us good companies at low prices, that is only the second motive, the real reason is the muck that it uncovers. And lots of scrips have a lot of muck;

As the price grinds, liquidity gets tighter and companies struggle to perform, the ones with weaknesses will fall. DHFL, Yes, Sun Pharma and more are expected to be added to this list. This grind is therefore important.

Investors in general are still feeling heady from the recent bull run, and are happy to pay-up. Current prices have a good dose of expectation and hope grilled-in. This is apparent because the growth in the last two years has only declined, and sharply so in some cases. This will be truly reflected in their respective share price when liquidity ebbs away.

Another point of advantage that I would like to re-iterate from what I have learned from reading another VP-er’s post:

Sometimes the market leader is trading at a far higher valuation than the second in line. He said, in last three years returns from investment in Berger was better than from Asian’s, share price wise.

When the exuberance is truly fizzed out of the market price, many such opportunities will surface.

PE 23 is only the beginning.

(Tushar) #1341

Wouldn’t it be more appropriate to consider the consolidated earnings for PE than standalone if we have to compare with past index levels?

(Amit Jain) #1342

Past consolidated earnings to be compared with current consolidated ones… not to be mixed. Consolidated or Standalone, they have different levels but paint a similar picture, hence would make a similar bell-curve/histogram.



December has lot of global events and in all likelyhood market will be super volatile. OPEC, FED, Elections etc. Today sensex plunged by approx 600 points. Globally indexes are correcting. China tech companies are scrutinised by US, adding fuel to fire of tariffs and trade tensions. Lastly india gdp forecast are downgraded as well…

Buying during panic is wise, but given high valuations in india, wait and watch seems to me a Prudent strategy. Infact gold can be a safer bet for the time being…

(gautham1) #1344

Hi Guys,
I know things like rbi governor, election etc wont matter in the long run. But I was looking at SGX nifty. It fell by over 150 points after Mr Patel resigned. The next morning, BJP was trailing in the early round itself. As expected, market crashes. But it recovered in the afternoon. ( Despite BJP losing 3 states.). Today another big rally. This must have taken even the experts by surprise. What could be the reason for this?. ( The DOW hasnt gone up either).
PS: I hate discussing about market/individual stock price movement. But still posting it its rather strange. Wanted to understand the market behavior.

(phreak) #1345

@gautham1- This is what happens when everybody has the exact same plan. Everyone wanted election uncertainty to get over to get in and were waiting it out. I don’t think anyone was interested in the outcome itself as much as the uncertainty of it. Patel resignation is very much a “perceived” short-term positive for a lot of things like interest rates, banking regulations, liquidity and so on. So all it takes is a few big asymmetrical bets squeezing the shorts out of the system while making the bets which were on hold to get in past elections, feel welcome to go long (double whammy effect).

This is easy to read in hindsight but I did expect something like this. However, I thought it would take a token fit for a day or two before this recovery happened - sort of like Yes Bank going back to 150 yesterday and then recovering from there late today but again, am sure a lot of people had the same plan as I did and acted on it in the first hour. There are not many unique thoughts left to go around that are worth big payoffs.

But I dont think this should be read as the market having taken everything in its stride. It seems so because of a few impactful moves happening in a short-span of time. With time though, sanity will prevail and by then those few large asymmetrical bets would have gone home to sit it out until the next opportunity shows up, leaving the longs to fend for themselves and the shorts to lick their wounds.

(gautham1) #1346

Thanks a lot. But not sure if I got the answer : ) . This rally defies all logic. One of the craziest moves I have come across. ( Its not that I am short or hoping for for a fall) . Every expert was talking about election and its negative impact.
The media/experts always attribute every fall/rise to some event. This time, I haven’t seen anything. (Of course a few are seeing positive in BJP vote share remaining the same.

Actually the US market is more puzzling. One day the market goes down. The headline will be “Dow plunges on trade war, slowdown fears”. The next day it goes up. The headline will be " Dow soars amid easing trade war worries"

(James Sebastian) #1347

I am newbie and I liked @phreakv6’s answer. What I observed in last two years that Ms. Market discounts events much ahead it happens, unless it is totally unexpected typed. Even her mood swings are ahead of its time :wink:

RBI governor resignation possibility was discussed almost a month now. Election results and possibilities were also discussed. I tend to believe that Market priced even a loss in all three states. DIIs bought yesterday and FIIs sold yesterday, probably institutions/MFs decided to buy after getting to know the wind may be a possibility. Also probably market was ‘simply’ waiting this uncertainty to pass for a bounce. Now what further we can say about this (and including this bit above ) is pure speculation and will not add much value to the thread.

(777) #1348

Looking at global macros makes me very scared. There is Quantitative tightening happening in US, Japan, euro zones. Interest rates moving up as a result through out the world. Growth cycle is peaking in US and china. Europe is facing brexit issue and china growth is another problem area. During the last recession in 2008, the situation was not this bad. This time it looks more like a global coordinated slowdown is coming up. Most scary part is what is happening in US. There is recession looming and 85% CFO’s in US have this consensuses view that 2020 recession will arrive in US. 45% CFO’s have this view that recession will arrive in 2019. We all know that USA economy forms majority of world’s economy and when US catches cold , rest of the world sneezes. Now combine all this with valuations. All the markets around the world are trading far above the average valuations only because of the easy money available in last 8-9 years with very low corporate earning. Now this excess liquidity is taken out of the markets world wide , along with deteriorating macro fundamentals across the world. In my view we should not look at how much the stocks have fallen , but look at what macro’s look at in next 1-2 years and also historic valuations . Higher historic valuations and deteriorating macro’s is a risk we all need to factor. It looks like distribution is happening in US at higher levels and then that distribution is over, there might be a crash. Don;'t want to scare anyone , we all need to factor risk top to down. Just my thoughts.


Severe drawdowns for ace investors in 2018

(Amit Jain) #1350

FED increased rates on Wed.

I suppose days of cash-from-tap are over. When market realizes that tightening of liquidity is going to be the trend for the next few years… And elections are done with, Nifty PE should reverse to its mean… Current data says mean is PE17. But that is beyond imagination at this point in time.

(Chandragupta) #1351

And just to add - “Mean reversal” does not mean stopping at the mean. If that happens, mean won’t remain the mean. For mean to remain the mean, market needs to go below the mean as much as it went above the mean.

(aswin) #1352

If an investor is someone who believes in buying low and selling high with the ultimate aim of making profits, why can’t such a person, who follows businesses and the market closely, short-sell the index or specific stocks that are overvalued to make profit?

Wouldn’t the investors of this forum be as good at shorting than regular traders (may be even better)?

I’m not suggesting that trading be discussed on VP. Just wanted to know whether VP-ers are 100% investors or adapts to market cycles with the ultimate aim of making money. The sheer number of posts on over-valuation suggests the former.

(Changu Mangu) #1353

Dear @aswin

Being bearish and shorting are very different things.

Many of us end of last year felt the index was very high and expected it to crack. Some sold stocks, some held on.

Let me share a true story…

I know of someone in Mumbai who shorted the index just after the first quarter of 2018. The small caps cracked but the index kept going up. The person who shorted lost all his money. He wanted to make it all in one bet.

Total amount lost: 18 Crores. Amount left with person: 0.

If one is coming to the stock market to make money; one can choose to invest in businesses. If one feels they are expensive one can put their money in FD’s, in either case they may make money or see temporary price changes in stocks, but they hold shares of hopefully good businesses.

The shorter is a gambler, a speculator, a casino addict and someone who is sooner or later bound to go bankrupt.

We should never confuse investing with gambling.

Shorting is not investing. This is a forum for learning investing.

Best regards.

(777) #1354

Short selling is a risky bet and we as investors should stay away from the same. All big investors have made money when their entry point was after a big slowdown. There are only very few who would make money with derivatives. I would stay away from derivatives and wait for right time to increase equity exposure.


So mean! :grinning:

Talking of 17 PE or even lower sounds wishful when nifty PE is soaring at 26 +… I am not saying it can’t happen, but waiting for it to happen or shorting with confidence is not right. More often than not, if at all it happens, most of us will be caught off gaurd, such crashes are near to impossible to predict.

Coming to investing, I believe, own good or great quality companies. Somewhere we have to think like part owners, shareholders and not stock pickers. To add analogy, if one pastes all brand logos of the stocks held in the portfolio, it should look WoW!!!

(777) #1356

Actually only time I feel thinking about PE17 is not wishful thinking is when pe is >26 :slight_smile: . We are at historic highs and as warren buffet says be fearful when others are greedy. There was recently a valuation study done my Motilal Oswal and its on you tube. If you find some time plz try to see that. They tried to compare valuations on relative terms. It was present by Ramdev sir.

(Niraj Kumar) #1357

I think everything boil down to find 10 good company available at fair value for retail investor and in all market conditions there are enough companies available which can satisfy these criteria. In bull market finding such companies is more harder while in bear market it’s much easier. Companies which can do well in next 10 years can be totally different than companies who have done well in previous 10 years. Now most long term investors make most of their money from only 2 to 3 stocks in their lifetime while other stocks can give only average return and for a person with small capital this is only way to create more capital not by timing the entry exit based on valuation. For professional money managers advisors this kind of timing approach is more suited because it is very difficult to predict for how many years market can be in high valuation or low valuation and when sudden fall occur that time having courage to invest or liquidity to invest is tough to find in good quality company. Also during bear market companies who are likely to do very well for next few years always going to look expensive at relative valuation llevel and there is no guarantee that cheap looking company going to rise after bear market is over . Also during bull or bear market only few industry group outperform or underperform most while other industry group stocks just increase decrease by slight value and even in those industry group only fewer stocks is responsible for most gain and loss and often those kind of stocks is tough to identify based on any objective analysis of company financial statement or industry outlook. Also secular fall across all industry group happens rarely like once on every 25 years like happened in 2008 otherwise most bear market fall happen withing few industry group or very highly overvalued stock while fairly valued sector stocks don’t fall much. For example Tata motors is available at very reasonable valuation though it has near term lot of uncertainties but when general market is at higher valuation it is at lower range of valuations. It is not tough to find list of such 10 companies in any market scenario. If somebody read interview of successful investors most of them just keep invested and that’s how they make their wealth. Their protofolio also suffer some fall during bear market for few years but again recover . To give cricket analogy a good batsman does not stop playing simply because pitch is tough to beat or because nine wicket is down and 100 more still to score and defeat is certain in the game. Best strategy to keep playing and try their best