Yes, falling EPS makes the trailing PE ratio appear even more expensive.
This is exactly what made Cyclically adjusted PE (CAPE) ratio popular in the developed world. You can find CAPE ratio for S&P 500 here.
(Link: https://www.multpl.com/shiller-pe)
Not sure if the current Nifty CAPE ratio is available online.
I cannot quite believe that nifty earnings hasnāt doubled in 15 years. Thatās very unrealistic!
Did you use consolidated EPS or standalone?
I would appreciate if you could bring any data to discuss. Here is mineā¦
This graph is from 2007-09-17 to todayā¦
NIFTY EPS on 2007-09-17 ā 221
NIFTY EPS on 2020-03-19 ā 439
You can check the data here
or on NSE websiteā¦
https://www1.nseindia.com/products/content/equities/indices/historical_pepb.htm
You will get PE on corresponding datesā¦ You can extract EPS from that using index/PE.
Please let me know if I did a mistakeā¦ I will stand corrected 
I agree to your data points. It is just unbelievable. Let me dig further and get back. Iām curious to know the reasons behind such a poor growth of EPS of 7% in so called blue chips stocks.
This is the raw EPS data without any normalisation for the last 20 yearsā¦ You can easily recognise that nifty EPS eps started dipping after 2015. I really havenāt done any forensics on why it is the caseā¦
If you extrapolate the normal EPS growth we could be at EPS of 580 nowā¦ ( just a rough extrapolation)
Stock splits happened in these 15 years would affect EPS, wonāt it?
Seems like demonetisation did play a role here, though it had probably started on a downward trajectory before that as well.
Nifty Consolidated PE as at closing of 19-03-2020 is 16.00 times as per Bloomberg. This is after replacing Yes Bank with Shree Cement.
For the first time since probably atleast 2013, TTM earnings yield of Nifty has been equal to the 10 year Gsec yield based on Nifty low reached on 19-03-2020.
Also based on closing 19-03-20, PE ratios of indices as per Bloomberg
Dow Jones - 14.05
NASDAQ - 26.82
Shanghai Composite - 12.98
Hang Seng - 8.86
BOVESPA - 11.50
Some things to ponder about.
Slow and staggered addition to portfolio is advisable (but i a cautious newbie so pitch in with your theories).
Vaccine wont be developed as early as 1 or 2 years.
Letās keep checking jobless claims in US and see how much is disruption.
The broader point I wanted to discuss how to deploy cash in this kind of markets. General views telling me to go slow and so are previous recessions like 2008 where you could have deployed cash over 3-4 years.???
The extent of damage is unpredictable, as in, is it going to be bad, or very bad. There is no good case here. This makes it a reason enough for a sustained bear market.
Banking will be affected. As long as uncertainty is there, banking stock prices will roller-coaster. Markets are going to equate the rising number of infections, with loses for the banks.
The markets will align to the hiccups, but not without volatility. However, long term investors will find themselves in a soup if a meltdown type situation arises. Like an avalanche.
This is a question I am struggling with. Also it becomes emotionally very difficult to invest in a falling market. To get around it, I have come up with a mechanical allocation plan as below:
| WHEN NIFTY PE IS | ALLOCATE |
|---|---|
| 18 | 5% |
| 17 | 10% |
| 16 | 10% |
| 15 | 20% |
| 14 | 25% |
| 13 | 20% |
| 12 | 10% |
This is mainly for my Index fund investments. Any other strategies out there? Do share. Views welcome.
@saugataG
Personally, I keep accumulating cash from my income and invest according to market valuation and moving averages of NIFTY.
I will buy in staggered manner with below allocation:
(Since NIFTY is below 19PE)
Please notice that if you are only dependent on market income, I would advice you to subtract 15% from above mentioned numbers.
Lot of respect to you for having the discipline to stay in cash while the market was going crazy. I too had a similar view but invested 25 percent of the corpus since October 2018. However, what is your reason for this being a sustained beat market? All things point to a sharp recovery as soon as countries start containing the virus. From start to finish China was able to eliminate cases within 2.5 months. Iām guess other less authoritarian democracies will take 3-4 months. What is it that will keep the market depressed when large number of countries declare no new cases of the virus for days together, the way China is declaring now? At that time, there will be 3-4 months of pent up demand in several parts of the economy leading to sharp uptick in the numbers and in fact give people a false sense of high growth!
The opportunity cost of missing out when the market rebounds is just way too high! In the last 3 bear markets ending feb 16, August 13 and December 11 - in each case the market rebounded when PE was 15/16. What makes you so confident that this bear market bottom happens at 12 PE like 2008. Itās impossible to predict. However being only 30 or 40 percent invested if and when market rebounds before will incur an extremely high opportunity cost. How do you Deal with this conundrum
In an earlier post I did suggest that now is good time to start investing. Which is again an individual call. For ex. I look for conservative entry points, and when it arrives I intend to buy complete allocated amount. Whereas, someone else might have a staggered way.
In the same breathe, I feel the down pressure on stock prices will be sustained. We cannot compare this with earlier instances, because they were corrections in bull markets. In contrast, this is a the start of a bear market.
I wouldnāt read too much into what and how China is going about this epidemic. I think it is going to be in the headlines for the good part of this year. As a result, weak businesses may cave in, causing an avalanche of sorts.
Industrial output, fuel consumption, fmcg, vehicles, Tyre wear and tear and myriads of other things are going to be affectedā¦ Businesses that are on the brink are not going to make it. This will scare the market even more.
It feels like doomsday. But we are going to make it, for which we must invest.
Not sure what makes you feel those were bull market corrections. For instance, between the peak of jan 2010 and the trough of August 2013, the small cap index corrected by 50 percent. It was a gradual painful decline over 3 years with negative flows and quite a lot of hopelessness prevalent among investors and businessmen. At this point from a PE of 15, the market bounced back never to return to the same level for 7 years and counting (it might reach there next week with this correction!). However to call a 50 percent drop a bull market correction in my opinion is not the correct characterisation.
I am in the same boat as you. Trying to time the market using tools such as PE PB and mutual fund inflows as possible indicators. However, there is a reason that almost every single professional investor advises against it. And I can finally now see why. While I managed to remain in a healthy amount of cash before the start of this major correction, i also need to get it right on being fully invested when or before the market starts to turn. Having to get it right on both sides is very very difficult statistically speaking. The PB for instance is at all time low. Should my allocation then be 100 percent for example? Why not follow PB and be fully invested instead of waiting for PE to hit 12.
Hope you see where I am going with this. But I would be happy to hear to hear how you plan to safeguard against opportunity cost of being underinvested if and when market bounces.
