‘Markets have touched an all-time high. should I invest now or wait?’ Why ask vague questions, to be met with equally vague answers? Partially eliminate the guesswork about the state of the market with this updated Nifty valuation analyzer. The previous edition had some major bugs, as pointed out by CFP Narayan Khatri, which have now been corrected.
Let us now look at where the Nifty stands.
Some caveats that have to be kept in mind:
1) Markets crash for no rhyme or reason. They can ‘crash’ at any Nifty value or PE.
2) Long-term investors must understand the relevance of the Nifty PE for the long-term investor and misconceptions about the Nifty PE before worrying about current value or PE.
History tells us that there is no particular advantage in exiting ‘hot’ markets and re-entering ‘cold’ ones.
3) If you think the market is over-valued, take some money off the table, if you will but do so because you would like to reduce stress and rest easy and not because you would like to maximize returns.
4) Exit and enter as per the requirements of your goal and not because someone says so.
5) Nifty at 9000 or PE at 25 means little. One should use multiple metrics to evaluate the state of the market. This sheet offers only a few of them.
So here we go,
Simple Moving Averages
Dual moving average analyzer for hurricane warnings! Details here: Moving Average Market Level Indicator
Current level: Above both the 150 and 365 day average. Since there is no southbound movement, there is not much to say.
PE with 10Y average and standard deviation bands
For the first time in more than 5 years, the PE is touching the ‘+ 1 standard deviation’ band from below. The last time the PE touched the ‘+2 standard deviation’ band from below, it stayed there briefly and came back down gradually. If you take money off the table, be prepared for a long wait! Not all ‘crashes’ are sudden.
PB with 10Y average and standard deviation bands
The current PB is still below the 10Y average. So I don’t think the market is ‘over=heated’
Div Yield with 10Y average and standard deviation bands
Unlike the Nifty PE, the 10Y average is heading south. So it is difficult to make generic statements using the dividend yield. The current yield is not too much below the current 10Y average. So I think it is still a good time to buy.
EPS one-year rolling growth rate
The current value is the EPS growth rate since a year ago. Now that rates have been cut, let us wait and watch if the EPS is increasing. If it does not, and only the price increases, we are heading for trouble.
Return on Equity or Book Yield
Current return on equity is close to what was seen in ~ 2001. Therefore, the ‘bull run’ has so far been governed by optimism. Let us hope the ROE increases this year.
Let us hope the market waits at current levels (or thereabouts) for growth to kick-in.
Subscribe and join the freefincal Youtube community!
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via: Feedburner
- We are also on Google PlusandPinterest
Do check out my books
Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantMy second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a youngearner
The ultimate guide to travel by Pranav SuryaThis is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for ₹199 (instant download)
Free Apps for your Android PhoneAll calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)