Update: Nifty Valuation analyzer – rolling standard deviation

The Nifty valuation analyzer now has rolling standard deviation(stdev) curves plotted along with the rolling average PE, PB and Div yield curves.

As pointed out by Ravi Vooda, the

  • mean + stdev, and mean + 2*stdev,
  • mean - stdev, and mean - 2*stdev

curves might give a better picture of the market valuation.

Here are some results

Nifty PE

Nifty-analyzer-6

Nifty PB

Nifty-analyzer-7

Nifty Div. Yield

Nifty-analyzer-8

 

Notice that the standard deviation is more sensitive than the average to time. That is changes more rapidly as the days advance.  So while one can assume that the Nifty is dangerously overvalues when the PE and/or PB exceeds two standard deviations above the average, we must also recognise that the standard deviation and the average are changing with time.  So our assumption could be wrong.

I would like to make it clear that my interest in such analysis is only to find out dangerous valuations. There is no point in either not investing or pulliing out when the Nifty breaches, say  22.  As pointed out here

 

exiting at high PE is fine, but when do you re-eneter, the answer is whenever! So as far I am concerned, if I pull out at high PE, it is only for my emotional well-being and not for maximising returns.

Download the updated Nifty valuation analyzer with rolling standard deviation

(This is a heavy file.  Graphs will take a moment to display).

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