NIFTY versus the Sectors

Market correction: “When” not “If”? We’ve all been bracing for it for a while now. At Price-Earnings of 25+, NIFTY PE is now two full standard deviations above its median value of 19, that suggests or rather shouts “correction coming!”. Simply put, we’re paying ₹25 for each ₹ of Earnings from the 50 companies in the NIFTY. Put it another way, if earnings of NIFTY companies stay at the current level, and if they pay out 100% of their earnings to shareholders, it will take 25 years to recover your investment. You’re thinking that makes no sense. Even the median value implies 19

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3 charts that sum up Indian equities in 2014

1. An “exuberant” 2014 Both key benchmark indices up by 30% December so far has seen the only significant correction in 2014 2. A “can’t go wrong” 2014 Every sub-index provided positive returns, some more than others with returns ranging between 10% and 70% Metals, Oil & Gas, IT, FMCG and Power under-performed the broader index Small caps, Consumer Durables, Mid caps, Auto & Capital Goods offered 50%+ returns 3. An “Expectations ahead of Earnings” 2014 Indian markets currently trade just above 21x earnings (For every ₹1 in earnings, you pay ₹21) Unless earnings show significant growth in the next quarter or two, historical data over 15 years suggests you’re more

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Markets this quarter and a game of dominoes

At a glance Indian markets have just ended their best quarter in five years – Valuation metrics tell differing stories – Nifty P/E say “expensive” but P/B say “fairly priced” – History suggests the interplay between the two reveal prevailing themes of investor expectations – Current expectations count on a bunch of interconnected things going right – Overly optimistic short-term investors might be rudely shocked – “Watchfully optimistic” should be the theme for calm investors After the frothy action in May, June 2014 saw some semblance of normality return even though the direction of the overall index remained the same, UP.

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