Predicting stock market returns

At a glance While predicting market performance is nearly impossible, there are lessons to be learnt from looking at past performance We take the predictive power of three popular valuation metrics; Price-to-Earnings, Price-to-Book and Dividend Yield P/E as a valuation metric performs better than P/B and yield as a lead indicator of annual returns As of early Jan 2015, the Nifty is trading at 21.2x earnings, more expensive than 80% of all trading days in the last 16 years Higher the P/E at the time of purchase, lower the returns achieved for the Nifty Current P/E levels indicate marginally negative

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