‘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.
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