2008 market slump technically started reversing in 2012. 2016 was full bloom peak .
Technically yes. But it feels absurd to call a year, when index returned 100%, a bear market rally.
@rajanprabu
You seem to have started the EPS vs Nifty comparison from jan-2003 when Nifty had corrected to ~1000 from levels of 1700-1800 in Jan,Feb of year 2000.
Would that be the most appropriate starting point?
If you compare the Nifty 50 components of 2014 to the components as of today, youâll find that around 20 stocks have been changed. Most of the newly added stocks are high PE consumer/Finance stocks (like Titan, Bajaj Finance etc.) .So comparing Nifty PE of 2014 to that of today is like comparing apples to oranges. I doubt if we will see Nifty PE go down to 20, unless another Global crisis like 2008 happens again.
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Nifty PE reflects the general exuberance in the entire investment community, the world over. The buying interest would be very different at Nifty PE 27 than at 18. Regardless of the stock.
What drives ones comfort for a price? I would guess an Excel sheet evaluation like DCF. But, most of these techniques revolve around how much to pay for the future growth. Growth is assumed, but what if there is degrowth, what if a lot of money is about to leave the country and the PE were to be de-rated? What if the industry is destined for an unforseen disruption?
When environment is of exuberance, a lot of these negatives are ignored by the market. Therefore, it is of paramount importance for Nifty to be at itâs average PE before making big investments.
Market makers take complete advantage of this blindspot, and release maximum number of IPOs during times of exuberance. Investors become more open to risks.
When the exuberance is absent, every negative is accounted for in the stock price, and positives discounted.
If Nifty PE is high and the stock PE is normalised, then upon derating of Nifty PE the stock price could further tumble.
At these levels I do not have too much confidence even in the best of companies, be it Asian Paints or HDFC. Lately, a lot of capital has been chasing the few remaining stocks with predictable earnings. What if there are couple of bad quarters? In this economic environment, it is possible for earnings to be flat. Then the stock will sharply correct, look what happened to Page.
Investors would swear by the stock at a price of RS.30K a pop, and now it has tumbled 50%. But still trading at PE 55. Can it go down another 50%? Who knows? Itâs a risk I will take when the odds are in my favor.
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I started from when the data was available ( source of the data given above). Just to avoid this confusion, I have also given the unnormalised raw data above. I think the message is clear even from the un normalised data.
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Why would one invest if one is not certain of the growth? And what if the stocks that one invest in are not safe haven stocks or the ones which foreign money is interested in? So the PE for those particular stocks will not get de-rated and what if the industry is not easily disrupted at least in the coming 3 years?
And I am not talking about the Asian Paints or HDFC kind of Nifty stocks, as they are perceived to be safe haven or relatively stable in bad economic conditions until some event revitalizes market sentiments and the mid and small caps resume their journey north. I myself have been profitable since 2018 investing in Nifty stocks while the rest of mid and small caps are in deep red and I have seen volatility in these giants too, although low.
Page, I will agree, if only one can predict or anticipate the downfall and come out of it when it was high, and return when it is beaten, which I guess comes only with experience.
While I acknowledge and try to learn MoS for individual stocks, is it rewarding to see individual companies through the lens of Nifty and miss good opportunities? I am an index investor too, so I am 1000% with you when you say, Nifty is still at high valuations, defaults, liquidity crunch, no visibility of earnings, doom approaching with no Government support, deficit rainfall, consumption going down, auto down, only saving grace is the heavyweights and a few IT stocks, I would love Nifty and Nifty Next 50 to fall, considering their past returns irrespective of the constituents.
But have you not invested in any growth companies irrespective of the broader indicesâ exuberance? Have you not found such companies which are distant from the influence of these indices and went on the path of growth silently? Have you ever thought that you have missed a particular chance despite identifying it as a lucrative bet?
I know that each has an individual style which may have been profitable for years, so one is both happy and content with it. I am learning, so yet to get hold of any valuable or profitable process that I could put to use.
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I seek investment in large caps and a few mid caps, therefore it makes sense for me to track the Index. I give priority to survival, and not to opportunity.
Who do you think will survive the onslaught of recession or a true bear market, which gives time and price correction both, and as a result emerge as a long term investor. Not many can answer this question out of experience, because in the last 15 years or so, there has been either price correction or time correction, but not both.
Nifty high on Feb 1992 was 1262, then again in 2004 this level was touched. Those are 12 long years, in those years Nifty corrected four times by more than 40%, and once as much as 58% from the top. One may argue that our market was not mature 20 years ago; but SP500 too corrected 55% in 2001.
Investing in growth companies is a fair-deal, but right now the risk reward ratio does not look favourable. One company doing well out of five in a PF, should not be a consolation enough. I do not have the knack or the stomach for such a portfolio. New investors, who have held a PF for less than 5 yrs, feel confident of their skills, but they will only know for sure after they pass the test of time; a test in which passing percentage is low.
From these levels, most large caps appear to be traps fueled by liquidity. For ex. HDFC Bank is trading at PE 27. But, when the prospects were better, a couple of years ago, it traded at PE 20; hence that is a 40% correction in the waiting.
TCS is trading at PE 26, whereas not too long ago the whole sector was trading around a PE of 18; A 30% correction.
Just like that most companies in my list appear to be dangerously positioned, inspite of having great fundamentals.
This is not a discussion in style of investing, but a debate about whether it is beneficial to trade the sense of survival, basically common-sense, for opportunity? And what opportunity are we tapping
into anyway? Does one expect a 15% CAGR gain on the entire PF in the next five years from investing at these levels?
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Another way of looking at it.
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These new components donât count for much. Top 14 companies constitute around 70% of Nifty weight.
|HDFCBANK|10.99|
|RELIANCE|8.93|
|HDFC|7.85|
|ICICIBANK|5.87|
|INFY|5.79|
|ITC|4.89|
|TCS|4.87|
|KOTAKBANK|4.11|
|LT|3.99|
|AXISBANK|3.44|
|SBIN|2.89|
|HINDUNILVR|2.66|
|BAJFINANCE|1.82|
|MARUTI|1.81|
Now, with the fundamentals out of the window and no recovery in sight, there is no doubt that liquidity is holding the market.
All eyes on Banking and Finance sector as it constitutes 37% from the above companies and has not corrected.
I understand what you are saying, in 2017 when I started investing, small and mid caps were reaching highs. As I recorded the prices I bought at, with the benefit of hindsight, it certainly looks I have overpaid for them, otherwise I would not have been in losses.
And regarding HDFC Bank, a lot of members here speak very high about it, so you really expect the stock to fall by 40%, I am sure if it falls, many more big names will fall more. If DHFL could bring Bajaj Finance down, this may bring down the whole sector.
Your philosophy and belief system is indeed your style of investing, as you want to wait and are defying what Lynch said that more money lost in waiting for correction than the actual correction and Keynes who said that markets being irrational for a long time. Although this time with the negligible experience and lessons I have learnt in these 2 years, even I think that the market may go down further more.
Then again, how could an novice average investor learn if he is too cautious and calculated and is scared of action, he has to nibble at least so as to feel and internalize all the experiences the market has to offer even at the cost of losing some money? How could one gain experience and become wise and mature if he sticks to a set of rules so stringent that he waits on the sidelines? You may have been in the markets for quite sometime (I donât know how many years), so want to survive because you are in for the long haul, but for new investors who cannot know where is the bottom, anytime is a good time to start, although with quality companies even at the risk of purchasing at high valuations. And many say that you should never be out of the market completely, so one has to be invested somewhere.
One question, where do you see value right now or which growth companies are available at reasonable price (GARP) which you can consider to buy?
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For a long term investor buying a stock at a high multiple means that he is confident about the future growth of the underlying business as it is completely in his circle of competence. Hence, he can invest as much as 10% of his capital in it, hold and have a good nightâs sleep.
But not my cup of tea. One astute and respected investor on this forum, he is in and out of small and midcap; mostly works on momentum. For the rest of us, the odds of making consistent money off of a high PE stock in an already hyped market are not good. The house always wins.
It may not entirely correct 40% in price, but in price and time. Banking and Finance is holding up well. Only after it gives in, will Nifty reach its mean.
I think the few books of Peter Lynch have done more damage than good. Fine ambitious readers took it out of context. He was a great fund manager, managed billions of dollars of funds money and diversified it over 200+ companies. I on the other hand am a humble investor with a paltry sum, in comparison, who intends to safely compound his money by an unimpressive 10 to 15% (therefore, my risk too should be humble). I neither have the team of accountants, which btw he forgot to mention and give credit to in his book, nor do I have the knack or years of experience.
(Sometimes I think these books are scheme of the fund houses to keep people on the edge, keep them hopeful. A few books read by millions and recommended to the next generation as well can bring in plenty of revenue to the fund and brokerage houses.)
If, like me, you too are a novice-investor then starting-out and learning the ropes by taking high risk is not the best way. That will wire your brain to be risk averse. I suggest you start out when the tide is low, pick your best stocks and hold. Buying low is very different from trying to catch the bottom, which is a myth. It is not very hard to know when the tide is low.
Again, it is not about what âmany sayâ, what Peter Lynch said, WB wants us to do or SB tweeted. They are all well-meaning blokes, so I would like to think, but there is a huge psychological gap in between what they have said in printed word and what truly applies to my financial well-being.
Long story short, simply consider buying when you and one astute friend are convinced that âtide is lowâ. At that time the risk will be low, and there will be plenty of room for the stock-prices to go up. Some mistakes too will be forgiven. This will wire your brain correctly. I have read your posts and I see that you are more than capable of selecting good stocks.
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In recent history of Nifty the following has happened:
92-93: down 50%
94-95: down 30%
2000-01: down 50%
2004: down 30%
2008-09: down 60%
Evidently, Nifty is not a stranger to 30% to 50% correction. But, during the past Nifty has not gone as high as PE 29. So, this time around, it is likely that it corrects even sharper than before. But, if we donât go as far as the lowest extreme and limit our expectation to an average 40% correction from 12000, then it brings us to 7000. This is PE 16, which too is average. Nothing extraordinarily low or something which is impossible.
Churning of PE numbers in an Excel Sheet shows that Nifty has been below PE 16, 27% of the times, since 1999. And below PE18 49%.
On the flip-side, one would miss-out on gains. But, from these levels this thought is not compelling enough.
This is all just generally speaking, and only indicative of a starting point. After these Nifty levels are reached each individual short listed scrip will be looked into and purchased at agreeable valuations, and reasonable future growth projection.
This is how I imagine a portfolio will be made. One which has good quality stocks, which are expected to grow around 10% year on year, all necessarily purchased near their very long term averages.
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When was HDFC Bank trading at 16 PE. I generally look at PB for finacials and HDFC Bank has been trading at 3.5 BV which is same as historical valuations for last 20 years.
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Hdfc Bank traded near 600 (588 lowest) during end of 2013-early 2014 when its trailing EPS was 35ish.
It is no news that underlying is a great business, and will best reflect the macro development in India. Coffee Can type investment. Buy at average valuation and hold till no scam erupts.
Have you considered the possibility that earnings might rise as opposed to PE contracting? Also, have you considered that nifty PB is close to historic lows? Anything is possible but a 40 percent correction would mean the lowest PB in the 40 year history of nifty that too by a distant margin. This scenario although possible, seems highly unlikely.
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I think global recession is imminent nowâŚgiven the trade warsâŚalmost 15$trillion global yields are in -veâŚlooking at the gold runup 1520$ and countingâŚ1800$ will come sooner i thinkâŚseems nifty is heading much lower âŚDont know where to hide in these situations
Lows in 2008/09 were 35-40% lower which is too big a percentage to say that we are close to historic lows.
Respect your views, however I think whatever happens in the past repeats (30-50% nifty correction) but may not be happen in the same fashion . This time the whole market has actually corrected more than 50% except 10 stocks in index. This is index management working here. I feel that broader market has bottomed out and many people who are waiting for index correction might get left out and this is why index management is being done⌠Itâs might make sense to look at the individual stocks and gauge if they are in buying zone.
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I suggest you look at Sensex as opposed to nifty because i understand they consolidate numbers as opposed to nifty (please correct me if i am wrong). From the historic low of P/B, Sensex is about 11% away.