Nifty is 10332 at PE 26.35, hence EPS is 392
This EPS value is not expected to drastically change in the immediate future. Therefore, while keeping it constant, if one were to know what might Nifty be at:
Amazing facts huh!
Would like to add to the above by saying that a lot of the recent Public Offerings have been FPOs, where the private equity holders (Promoters) sell their equity to the Retail Investors.
Now, when the music stops, what are the chances that these Retail Investors will find the âgreater foolâ. Which institution will buy this bulk of shares (27 lakh crores as i read somewhere) off of them?
The largest institution, i.e. the FIIs are net sellers at these valuations. Government Institutions will cushion the fall, but they start buying only at average valuations, till then it is going to be free-fall.
It is highly likely that the Retail Investor will be caught with his pants down.
Isnât this the game always. As stock market is a zero sum game, at least in the short term, someone has to make losses for others to gain.
The credit markets have sharp antennae. They issued early warning alerts four to eight weeks before each episode of stress over the last 20 years, although with several false alarms along the way.
Are we near Next global financial crisis
Very interesting articls
Worth a look, the views of Prof Bakshi, published in ET.
Camouflage and dope in a Bull Market - http://www.ecoti.in/C6Vf4b
Before taking TTM EPS,one must normalize demonetization and GST impact and also ensure it is consolidated EPS
Black swan events occur randomly, thatâs their nature. How can one normalize for that? Such events are a part and parcel of life. Historical data is a continuous series, whether its standalone or consolidated. Its not like earlier consolidated figure is now being compared to standalone figures.
Its much better to see future not as a series of forthcoming events but as a probability distribution of events that may or may not occur and place our bets accordingly. Nothing is set in stone but nothing is improbable, either.
This picture is available in public domain at the ICICI Pru website here: https://www.icicipruamc.com/docs/default-source/default-document-library/monthly-market-outlook---november-2017---investor.pdf?sfvrsn=0
I like the term used by Devaki aboveâŚa melt-up ! This is similar to an era when the term used was âpanic buyingâ, I think this was the last time Manmohan won the election back in 2009.
Devaki has also captured the point beautifully - as long as there are bears and skeptics in the market, a meltdown is unlikely. Its only when everyone loses his mind that the market then springs its ambush. But we are also at that delicate stage when a single large event is needed to topple the market over the abyss. What is that event ? Then all the DII money, SIP money will dry up faster than a parched throat in Sahara.
Some events are generally labelled as Black Swan but are privy to bigwigs. Case in point Reliance Power IPO.
It was almost a decade ago, and this IPO received a subscription of 7.5 Lakh Crores. Unfathomable! that so flimsy a business with not a single turbine in motion, managed to amass such a huge sum. Talk about suspension of logic, and being high on euphoria.
Immediately after (i believe, the very next day) the IPO process was over and every deposit made in the name of the promoters, the market crashed. And as we know it today Lehman Brothers was the cause. I would like to believe that this was a coincidence. But, when lakhs of crores are on the line I am forced to think otherwise.
Point being, World Wars, invasions, Economic Meltdowns and other such events may be Black Swans for the layman. But, in reality these events are a machination of the people of power. Just another ruse in manipulating the Retail Investor and milking him dry.
Who else fits the bill of the ideal âGreater Foolâ?
I have often thought on these lines. My biggest fear now is also on these lines. For eg. Demonetisation happened and all the money eased into existence in the last many years which wasnât backing any useful assets and was hoarded has now entered the financial stream. Now with all this money still in existence, it is not going to be possible for the govt./RBI to create more money supply without stoking inflation greatly. It is going to be inconvenient for the govt. to use all this money for productive purposes as well as it is still in private hands.
So what would help matters? A big stock market crash can be convenient after a lot of this money which wasnât productive has entered the asset class? With a lot of money vanishing into thin air, whatever exists is going to be more valuable and whatever new is created will belong to the govt., borrowed from the RBI through bonds. May sound like too much of a conspiracy theory but this is what has been happening in the name of economic cycles.
We are in the deleveraging phase and the money has to come from somewhere. We donât really collect much tax to use that so it has to be fresh money and fresh money cannot be created with so much money supply backing equities. To rebalance the debt side of things, some of that equity money has to vanish and fresh money has to come in to erase bad debt.
I donât agree that the money which has come into the financial system would disappear into thin air, somebody will still be holding the base money, though notional profits may disappear.
Currency in circulation comes under M1 and is quite inconsequential to Govt budget expansion, Govt and RBI should be more worried about M3 which is directly correlated to inflation, IMHO.
Hi Devaki. I enjoyed your post.
I just want to add a theory that it is not bears but bulls who cause prices to come down by becoming 100% invested and then at one point have no more money to invest even though they want to. And thus the sellers find no buyers and pushes prices lower 
The bears simply lay in patient wait for the bulls to get tired (fully invested).
Bears donât get excited by a shallow correction. Itâs only the not fully invested bulls who invest more (and some idiot bears aka me but get out since itâs not our cup of tea).
Itâs exactly what you said, just looking at it differently.
Yeah, Huge Debt levels and especially the non-payable chunk is a real threat to the bulls. By the time the bulls wake up and smell the coffee, it will be late.
IDBI has officially declared an NPA of 27%⌠shows a decadent banking system in the hands of politicians and companiesâŚ
Just read somewhere that most scams are identified only in bear markets, although they have been right in the open the whole time.
Real interest rate over centuries and interesting commentary on marketwatch.
This is the first month in 2017 where Nifty has shown a lot of indecisiveness. I wouldnât call it a pin bar at this stage. Looks like a doji to me with a bearish RSI divergence. Looks like the index can go either way in the coming days.
Is anyone else concerned about foreign portfolio investors being net sellers in India? Does anyone know when were FPIs net sellers and generally how it affected shares the last time in Indian context?
While it is far from doomsday, I can still remember stocks with high FPI holdings getting heavily beaten in the last bear run. This should not affect a value investor with forever horizon. But still could be opportunistic time for bargain buys.
This happened in 2008. In a period of 6 months, FPI yanked around 8% to 10% (vagulely remember - and approximate) and the market tanked more than 50%.
This event is good case study for supply-demand economics of Financial Market.
