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Are we nearer the market top than the bottom?

Are we nearer the market top than the bottom?

Are we nearer the market top than the bottom?
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By Sonal Sachdev  Jul 19, 2018 4:03:22 PM IST (Updated)

If we look at benchmark index like the NSE’s 50 stock index, the Nifty, as a mirror of market returns, it pays to take a closer look at its valuation.

Numbers speak louder than words and if we look at benchmark index like the NSE’s 50 stock index, the Nifty, as a mirror of market returns, it pays to take a closer look at its valuation.

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A quick scrutiny of the Nifty index value trend and its valuations at peaks and troughs over the past decade reveals some interesting facts.
The index has peaked at PE valuations of between 26x to 29x in the recent past, while the bottoms have been mostly rising steadily from about 15x to 21x.
Given this, at the current PE of a little over 27x, the market can’t be said to be severely elevated.
If we assume that the long-term market trend is up and we aren’t talking a few months, but some years here, we could expect the earlier valuation peaks to be exceeded.
Given we have got to over 28x in the past, an expectation of peak value of 29-30x doesn’t seem far-fetched.
If we work with 30x as a number, the peak Nifty value could well be over eight percent higher from here at about 11,900-12,000.
However, what seems clear is that we are definitely nearer a top than a long term bottom.
That said, given that the index trend has been outpacing the rise in valuations— due to strong earnings growth — a further upward revision in bottom valuation should not be discounted.
If we work with a bottom multiple of about 25x, it gives us an index of about 9,900-10,000.
So, irrespective of levels, while there may be some more steam left in the market before it runs out of breath, if you are not in the buy-sell game, but a buy and hold investor, it might pay to wait a little before venturing in.
Remember, the market never moves in a straight line.
For every peak, there is a bottom and while catching a bottom is difficult, flirting with stocks nearer to what might be a peak could be even more injurious to your portfolio’s health.
NIFTY VALUATION AT PEAKS
DateP/EP/BDiv Yield
8-Jan-0828.296.550.82
23-Jan-1827.813.741.02
13-Oct-1025.913.921.01
NIFTY VALUATION AT BOTTOMS
27-Oct-0810.682.122.24
14-Jun-0614.923.91.8
21-Dec-1621.163.061.37
NIFTY CURRENT VALUATION
18-Jul-1827.283.71.19
 
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