Let us see some analysis of current market conditions . Most of the people are rushing to buy now for long term . but this may not be a market to buy for long term . I am myself Bullish now , but for short term not long term .
I would not be surprised to see markets rise by over 10-15% more over next 1-2 months till the Budget . But sooner or later I expect
- A nice correction if this is another bull market .
- Bull rally coming to an end in the strong bear market
The simple analysis is with a simple and strong tool called PE ratio. PE ratio tells us how expensive or cheap is the current underlying . In other words what kind of value does the market provide us , irrespective of the price .
Historically Nifty has been considered and shown instances of being oversold in range of 10-13 and overbought in range of 20-25 . Nifty has had a crash after after getting in the range of 20-25 and have rallied after touching the range of 10-13 .
OVERBOUGHT MOMENTS in Indian Markets
Click to enlarge , Data for last 10 yrs (Jan 1999 – 31st May 2009)
You will see that whenever nifty crossed 20 , It was time to be cautious . its not exactly the time to go short sell , but at least book your partial profits and be cautious with further buying for long term .
Current situation : As I write this, Nifty PE is around 21 . Its not a very good situation to madly buy for long term . Its a time when euphoria is at high point and it can take markets a little further. So you can jump in now with short term perspective , not long term !!, because markets may fall in some weeks or months . Expect it . but dont force it !! .
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OVERSOLD MOMENTS in Indian Markets
Who all missed the current Rally ? I missed it . there are two reasons , I am a trader not an investor for long term (at least currently) . So I do not concentrate on it . But you could have not missed it if you had read this concept earlier and had the guts to go against the so called “experts on CNBC” who were talking about 5k or 6k for NIFTY some months back .
Click to enlarge , Data for last 10 yrs (Jan 1999 – 31st May 2009)
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If you see the chart , you can see that after touching the PE levels of 11-13 , markets have rallied back as it was too oversold !! . Again , just touching these levels of PE does not signal a BUY , its only a signal to be cautious and make your mind for long side , and start the accumulation process without fear . Markets will still make lower levels and experts on CNBC will still cry over economy conditions and world coming to an end . But market rewards the “risk assumption” , not the actions on obvious facts . You also have to decide how much money of your portfolio would you like to put in stock market after considering your risk-appetite .
What can we learn from this PE Concept ?
“We can learn from history that we do not learn from History”
This is true for almost 95% of the long term investors all over the world . They do not learn things ,they do not do any research , they do not go and read blogs or tons of informational sites , they just want tips from others and make money . the mathematical expectation of that kind of investing is negative and cant work for long term. Lets develop a simple concept of PE based Investing . here it is
BUY Signal : Once PE crosses below 13 .
When NIFTY PE reached levels of 13 , start accumulating the stocks and invest your money in 4-5 installment over some months. Make sure that markets are going up and down and moving in a range . If PE crosses below 11 , its a must BUY !!
SELL Signal : Once PE crosses above 20 .
Book the profit once NIFTY PE crosses above 20 , Don’t book all profits at once . Book it in parts . PE crossing above 20 does not mean markets has to fall , its only an indication that markets may be oversold and now “smart people” will starting selling there shares to mad public . Short sell the shares once PE and Markets start falling down from PE levels of 20 . If PE crosses above 25 , its a must SELL !!
There have been cases of PE going up to 25-28 levels . That will happen at the peak of strong bull markets like Jan 2008 . In very strong bull markets you have to understand that PE will cross even above or below its extreme points . That’s the risk part of stock markets from which not even GOD can save you from !! 
. this is the time when your buying in parts and putting capital which you can afford to loose will help !! .
Anyone who puts 100% of there money in stock market at once on one single time on a single bet has a secret affair with financial disaster which he/she himself is not aware of . So dont put all your money at once . Only put a part of your capital at any point .
Where do you get the PE data for Indices (Nifty and other Indices)
NIFTY data : http://www.nseindia.com/content/indices/ind_histvalues.htm
PE data : http://www.nseindia.com/content/indices/ind_pepbyield.htm
Note :
- I have divided Nifty Value by 100 to make the graph look the way it is . In graphs , so on X axis if you see 40 , then read it as 4000 for nifty . but exact 40 for PE .
- PE value will be separate for individual stocks as PE ratio for stock can go up or down for many other reasons . So if you are doing Stock analysis , see its historical PE values and find some pattern yourself . Innovate !!
I have added sms channel with this blog , subscribe it to get updates on your mobile whenever a new post
in there or I put some message for you .
Now if this time I don’t see any comments , I will suicide and then no posts from now onwards . please save me ! . and Who is gonna tell me how this now improved blog looks like ?
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{ 83 comments… read them below or add one }
Hi Manish, For once I am finding a technical topic interesting. It will be very helpful for me since I was contemplating whether to book profits or continue buying or holding. Even find your post on booking partial profits appropriate for the current market situations.
Manish Hi
Ok You wont have to kill yourself over the blog its excellent and you don’t need approval from your readers coz you yourself know its worth!!!
I personally feel that as long as you write for yourself and enjoy it you will always come out with gems. On the other hand if you start writing for others very soon this blog will become a chore!
As regards to the post, as usual brilliant stuff. I am an avid reader of your blog hoping to learn some practical investing advice. Anyway now will also keep PE on my radar and and always keep a watchful eye on it(perhaps will post weekly charts on my blog!)
Once again keep up the good work and let those posts comin!!!!
Cheers
Manoj
hey manish,
nice article,as also nice new design.
keep it up dude
@sumi
Nice to hear that you are finding it interesting. Keep visiting
@Manoj
yeah , thanks , I will put up the post soon . Regarding writing for others, thats a secondary thing ,and it will only happen if its not compromised with my blog content
@Moneymanager
Thanks
Hey Manish ,
Coming after a break here …hope u remember we had a chat when you were in process of changing lot of stuff on this blog… I like the site as is now not cluttered … more space dedicated to writing …
Ur posts as always are worth reading.
And i liked this PE thing very much was g8 to add to my Knowledge bank.
Regards,
Vipin
Hey Manish!! DONT STOP..No Never !!
I really like your articles, they are very informative. I really like the way you inspect market instruments.
Your blog has inadvertently forced me to plan my financials. Thanks to your blog, I m no more a financial dumbo, who (until found your blog) just invested into marketing gimmic of smart agents.
There is not even a single article of your blog that I havent read…and my crave for more is increasing with each new BUZZ you send across.
ITS VERY EASY TO LOSE MONEY…
It doesnt matter how many fish come to coast with wave and die(they ll die anyways)…but it matters to the fish that you throw back into the sea (at least you save a few souls)…..Your articles are such life savers…DONT STOP…It matters to many (at least 37 followers believe that)
Regards
Yogesh Tiwari
@Vipin
Hi Vipin , how are you doing .. Nice to hear that you are liking the blog look better now . I am heppy
Manish
@Yogi
I am extremelly happy to hear that someone is taking care of there finances because of my writing , I am sure there are many but you are first one to say it .
My articles are life savers , nice to hear that
. deserves a tweet . Keep visiting 
Manish
Hi Manish,
Yr last comment under Sell – If PE crosses above 25 , its a MUST Buy !!” should it be MUST SELL? Could u clarify pls
Thanks
@khokan
oops ! , nice catch , thanks man .. i changed it
manish
Manish wonderful analysis on markets,Its a eye opener for long term investors and iam going to give link to this article on my blog,So that long term investors will be cautious.
No suiside manish,ur fantastic blooger,not a worry.
http://moneyvistas.blogspot.com/
@moneyvistas
Thanks for that
. I am sure this will help long term as well as medium term investors .
Manish
Hi Manish,
Good blog and a good article. But there's a problem with the nifty link you've given for obtaining nifty PE's. Its only giving the index value and not the PE – can you post the correct link please.
Thnks,
Sam
@Sam
the link is :http://www.nseindia.com/content/indices/ind_pepbyield.htm
I will update it on the post . Thanks for pointing this out .
Manish
Does anyone know if the historical PE’s shown at http://www.nseindia.com/content/indices/ind_pepbyield.htm are based on trailing earnings or forward earnings? Thanks! Matt
Matt
You should ask deepak Shenoy on this
Manish
@MONEYMANAGER
Thanks
I agree that it is a powerful bear market rally fuelled by excessive liquidity and cheap credit. Soon the fundamentals will catch up and a crash is inevitable
Wish I had come across your analysis before, I would not have lost all my fortune. Really unique and worth reading.
Thanks for enlightening from a new angle.
@Anonymous
As I always say "Making mistakes is a previlage which unsuccessful people dont get in life" . Dont worry if you lost some money . This is learning part . Now you know what you should do next time
Keep visiting for new articles .
Manish
Manish,
Back after sometime. I really like this look and feel of the blog looks more structured..
This PE stuff is interesting. Buying the stock at a reasonable price is only half the battle, the most important part is selling it at the right time. It does give me some indicators.
I don't want to trade although considering the current market maybe that will make me some money..
One thing I know is that if you go long which is greater than 12 months and sell then you don't have to pay tax!
I feel most of the earnings goes in paying tax, so better to find legal ways to avoid it…
My 2 cents!
Keep blogging..
@Arun
"the most important part is selling it at the right time" , Very true
. The PE stuff will help in both exit and entry , A person can buy with low PE's and then let it go until it reaches 20 , and then become cautious , book partial profits on signs of weakness .
One does not have to pay tax if you sell the shares or mutual funds after 1 yrs , However selling it before 1 yr will attract 15% flat tax (short term capital gain on equity) . So Its still worth paying it
If you make 10k as profitster , you actually get 8.5k after tax.
Manish
hiii….Manish really you give very correct view on NIFTY…and it is the time for exit…very valuable guidence…i want some chat with you…can you provide me ur contact no….i m also an option trader
@Sourabh
Hi
You can chat with me at manish.pucsd@gmail.com or manish_chn@yahoo.com or call me at 9886409654 .
However , I never said its time to exit . The only thing is that now the valuations are not the best for investing . If you want a quick gain , you can invest some money for short term on dips (with strict stop loss) .
Just look for tired look in markets and get out in parts when you identify it . Short it really hart when after some confirmation on break .
manish
Mansih
Are you sure about that? I am under the assumption that I need to pay more than that depending upon how much my total income is.
If my annual income falls into the highest bracket and I earn 10K on shares so I will be taxed on the highest bracket which is more than 15%.
If my understanding is not right, please let me know.
From your comment I gain that income from equity is taxed in a different manner compared to your other income sources..
@Arun
Yes , Profits from shares and mutual funds (Equity) are taxed in different manner , Its flat 15% if its Short term capital gain (less than 1 yr) and no tax if its long term capital gains (more than 1 yrs) . Last year STGC tax was 10% .
Refer to my other articles on Capital Gains and Indexations .
Manish
Thanks Manish. I am kind of out of touch with the IT laws in India..
@Arun
Keep Reading on net about it , You dont need to read it daily or weekly , Just once in a while you can upgrade your knowledge by reading about it .
If you consistently read this blog , i am sure you dont need to go anywhere
Manish
Manish,
Execellent, excellent article. Gladdens my hear everytime I see an Indian PF/Investment blogger. Keep it up sir!!
@Prasanth
Nice to hear from you , I am glad you liked the article , I am sure it must have given you some perspective about the market behaviour
Manish
Hi Manish,
I liked the approach to take long/short position using PE Ratio analysis. This is the BEST discovery in stock investing that I have come across in the recent past.
I have a growing community of india focussed investors viz., The India Investment Network (http://www.linkedin.com/e/vgh/1998285 )I invite you to join the community and post such interesting discussions. This is the community of people interested in investments in India in Business & Trade, Stock Markets, Private Equity, Public and Private Projects, Mergers & Acquisitions, Venture Capital, Angel investments as well as investment opportunities, risks, investing strategies, people and more. We try to provide information about new investments in India through this network and also promote discussions related with investments in India.
I am sure that, you will find both the communities interesting and useful.
Regards,
Krishnamurthy
Founder,
(i) The India Investment Network
(ii) Interactive Marketing Professionals Worldwide
(iii) Interactive Media Worldwide
Email: Krish23456@yahoo.com
@Krishnamurthy
Thanks , I joined the group .
Manish
Manish – This is good stuff.
To prove I have read it, I am one of those 95% who hasn't done enough research at least on the following question! BUT could you let me know if there is a way of short selling indian stock market indices?
Thanks
@Ikram
Shorting the stock market Indices
The best thing you can do it to short "futures" or buying "put options" . Read about it through net of search "Futures" on this site .
manish
I am confused about the graphs. You say it is Nifty vs PE. But there are 2 lines. In a graph between 2 things, there can only be one line. For further confusion, you have labelled one line as PE and the other as Nifty. I guess one of the axes, maybe X, is "time", but I am not sure. If so, you need to plot the actual time values there e.g. year,month,date etc.
There is definitely something seriously wrong with the graphs. Which software did you use to plot these graphs? A good software wouldn't let you make such fundamental mistakes.
Hello manish dear
I have yet to try as i have read on 19th august 2009..
Still I am sure it will be interesting.. and wait I also have many interesting things to share with you..will write more later on…God bless you ! Keep up the great work anyway atleast I will be with you..
@Chanakya
Sorry if its confusing to you .. I should have been more clear .
But this is how you interpret the chart
X axis is the time line . Y axis is for both NIFTY PE and NIFTY Index , but its divided by 1000 for nifty . So if Y axis is 10 at some point , it points to NIFTY PE of 10 and NIFTY Index at 10,000 . Mainly concentrate on high and low points and not the values per se . its main purpose is to demonstrate the relation between Nifty and PE .
@Anonynous ..
Make sure you look forward at Nifty PE going higher now .
manish
The
yeah
This article has made me look at the nifty levels from a different perspective. Has gone through the same seems interesting. Please keep up the work.
with regards
ekamber
@Ekamber
Great to know that you are looking at it from different way now .. How has it helped you ? What do you think about nifty in respect to PE ?
Manish
Hi Manish,
I just came across this blog and it's really informative. Keep up the good work going.
Btw, I have a doubt, what should one do if the Nifty trades around PE 14-18 range for sometime. Also I have a feeling that Nifty will not go down to PE 13 or below in a hurry when it fall from higher PE 20 or 21. By going through the historic data's it took a year or so to reach the top when it falls and vice versa.
If that is the case, How can the short term investor play in the market?
@ manish
Sir how the PE of nifty is calculated
where can i get the TTM EPS of nifty.
@Sama
I dont recommend Trading in short term using Nifty PE .. its an indicator of people emotions and markets state for long term .. You need to see indicators which suits your Time frame .. Nifty PE is definately a NO no ..
@Manoj
I am not sure about that
Manish
Thanks Manish for the clarification.
Nifty PE was at 22.41 on 18 Sep. Time to get real cautious!
Nice article. Great to find the links to Nifty PE historical data.
Guess your article may sound more rounded with following observations added.
I observe following from using the data in excel
Valuation Statistics
Measure PE
Median 17.36
Mean 17.63
Mode 14.63
Std Dev 3.67
Skew 0.51
Kurtsis -0.32
The implication of the median is that exactly half the time, the Nifty traded below 17.3. The mode shows it most commonly traded between 14-15PE – in fact it traded between 14-15 roughly once in every seven sessions (14.7 per cent).
The laws of normal distribution suggest valuations between 14-21 (within one standard deviation of the average) around 68 per cent of the time and valuations between 10-25 (within two SDs) around 95 per cent of the time. The actual stats are 69 per cent and 95.5 per cent respectively so the reality is very close to expectations.
If the market is outside Average+/- 1SD, it is at an unusual valuation. Outside Average+/- 2SDs, it is at an extraordinary valuation. A basic buy signal comes at PEs lower than the long-term average. A basic sell signal comes at higher-than-average PEs. This simple rule can be refined by the laws of normal distribution.
A modified investment strategy would be something like the following:
At the higher end of the 14-21 scale, cut exposure.
If the market valuation is near 24, sell.
At 14 or below, buy heavily.
@Don
Excellent .. You have added great information here.. hats off ..
The +-2SD thing which you mentioned is the thing behind the Bollinger band indicator and they theory of overvaluation and undervaluatin applies so well there ..
I will try to come up with some article based on the facts similar to you .. Nice one ..
manish
Hey Manish,
Nifty PE is already above 23 as of now. Do you think it will ready for big correction ? or it will touch PE 25 and then come back down?
I know its difficult to predict market but through analysis you can have better idea. Need your thoughts on this.
@Koonal
Nifty PE can be in range of 20-25 for many weeks and we cant predict its movement to deep level .
Better ride the momentum for a very short term and book profits (in any) and then sell once NIFty PE is above 25 .
Manish
I have slightly a different viewpoint. I think the PE will keep going up defying reason that PE is now quite high and should be ripe for correction based on historical standards. Here are the reasons
1) The PE refects EPS of last 12 months which is like the report card of a student who performed badly as he was suffering from a desease (Extreme Global Recession). So, as the student is now as fit as ever, he will certainly do much better going forward. Hence, the past performance i.e. high past PE looks justified.
2) Retail participation is almost absent currently, when housewives are not recommending stocks, public is not participating in IPOs, etc.
3) The fact that we all are agreeing that a correction should happen. The market always defys common opinion
4) FIIs are still buying heavily, even after PE crossed 22. Normally thier buying tapers out before a crash
5) The last 12 months PE may not be reflecting the PE for latest quarter, which if factored in, will tame down the PE to some extent, particularly because the earnings were significantly higher in this latest quarter.
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Nice analysis. Right now the PE is approximately 22 (trailing 12 months), however as thrid & fourth quarter of last year was very bad, earning is likely to improve considerably in next two quarters, leading to lower PE in next two quarters if the market remains at present level.
Market can fall anytime, even from a PE of reasonable level; markets can go up anytime even on a higher PE. Although timing markets are real waste (at least for me for I have failed everytime), it is better to listen to experts on CNBC. Markets will fall when an overwhelming majorityof them will be bullish and rise when overwhelming majority of them are bearish. Currnetly I see that almost all of them are cautious and biased towards bearish, I feel that even if the market correct the correction will be sharp and short lived. Off course if fundamental of present rally changes (dollary carry trade induced liquidity), there may be real sharp corretion.
What we can take is a long term call. In my view one should be bullish on Indian economy for its strength and resilience and hence a long term investor should be willing to err on long side with value approach.
@Surendra
All your points are valid and logical , However what part of Analysis do you think is wrong Or unjustified . Or is it that Its all chance ?
please clear .
@Rajesh
I agree with your point of being Bullish , But in very long term , In short term , We can not say that its the best time to buy for a normal investor who does not trade with any strategy other than Nifty PE analysis .
Manish
PE analysis is a great thing, and one must do in order to guage the overall value of the market.
Nevertheless, any formula, including formula of PE analisys is boud to fail. For a normal investor there is only one successful formula, that is dollar cost averaging or systematic investment plan.
Hi Manish,
I certainly believe in the trailing PE as a good barometer to judge the market. However, it is normally difficult to judge the best time to buy or sale based on trailing PE only. But nevertheless, it does help us to judge when NOT to buy or sell.
For example currently the PE is 22.24 which is high historically makes us to decide that its certainly not the right time to make high investments, because the downward risk is high.
Similarly, if PE is say, 15, this does help us to decide to safely invest big amounts for long term as historically the downward risk is low.
We need to keep in mind that PE is ever changing due to earning changes, moves in the market are based on expected PE and not trailing PE, and each PE unit means around 5-10% move in the market. There is no best PE for right decision because most of the time market bottoms are reached at 18, or 15 or 10. Each of these levels are very high based on percentage. Suppose I sell all my shares when PE reaches at 25 and then wait for the right time to invest. However, I will not know when is the right time, is it when PE is at 20, 18, 15 or 10? This may make me over anxious and keep me self doubt whether I did a mistake? Will the market ever crash? Will the high earnings bring the PE down?
I would personally use max 10% of my portfolio to time the market based on trailing PE. Though I have never actively done this, I will certainly like to try it out.
@Surendra
I understand your points .. Thats the reason I would not recommend using Nifty PE for short term or even medium term trading .
A person using this should take not more than 6-10 trading calls in 10 yrs of time frame , These should be generally the extremes end . only near the top (around PE of 24-5 and below near 11-12 )
Manish
E in the PE does all the magic here. Even if one buys at 13/14 or below in a given financial year, if the combined average earnings(E) of nifty decreases over the subsequent years(usually said in the terms of indian economy prospects), then if the pe is above 21 also does not give me a good return(It may give a negative return also). So, the common investor should keep this point. Same thing happens vice versa (combined average earnings increase in subsequent years, but the pe is going down in those years). The main thing one should keep an eye on average trailing earnings of the index under consideration every year apart from pe. But, i don’t know how a common investor gets this value from newspapers or websites. Crucial average index data like average earnings and pe are kept hidden from majority common investors(who don’t/can’t use internet). Not many (financial and non financial) newspapers publish the daily nifty pe. One last thing is that investor should have patience for waiting till pe reaches required levels for buying and selling. Money flows efficiently from impatient to patient over time.
Great information , tell me how you get that data ?
PE is a function of Price versus earnings. Earnings by itself is of not much relevance because we should judge how much we are paying for the earnings, that is PE ratio. For example, though we know that L&T is a great company and may have achieved a great earning growth, it still may not be good to buy if its expensive (high PE ratio compared its own PE history). Though trailing PE is certainly a good measuring device, the future earning expectation is what drives the market, which certainly is very difficult to predict. The PE ratio along with price as percentage above 200DMA can be a powerful way to measure the right time to sell. On an average in a bullish market condition Nifty is above 200DMA by 16%. It normally tends to correct by at least 10-15% when Nifty is above 200DMA by 33%. Currently it is at 24% above 200DMA and the trailing PE is 22.63
The upsite target can be 5460 (33% above 200DMA) and target PE at 24.28 at this level. At this level when the PE is 22.63, I am certainly not going to invest heavily. I will just allow my SIPs to run (to keep my investment habit going on for long term). I will watch out for the level of 30% above 200DMA and will sell around 10% of my portfolio and then wait for a correction to get in again. Looking at the strong FII inflow, I think the above level is achievable.
I agree with your points .. man , you look a pro
So obviously one should not just use just PE ratio to decide , these should be other indicators as well …
Manish
Hi Manish,
Thanks. I have the same passion as you do – Investments and Money. Why not learn something which will work hard to earn for you while you sleep……?
Surendra
What learning ? tell me ?
Manish
I just mean that its useful to keep researching and learning about art of investing and making money. After all we all work to earn money. But most of us work to earn just enough to make a living, not to create enormous wealth. Perhaps its because most of us don’t believe that we can have enormous wealth. But on the contrary, its very much possible. Warren Buffet always says that. However, few believe him. However, he is too good. We may not achieve 1% of what he can. But we can certainly imagine wealth. The strong desire to make wealth will make us keep thinking about it, learning about it, craving for it. Is it crazy?? I don’t think so. But yes, everthing comes with a price, whether its your patience or whatever.
Here are few learnings I would like to share
- Don’t work hard for money, but let money work hard for you
- Power of Compounding is the one greatest phemonenon of mankind
- Its better to sweat now than to bleed later
The second point is so powerful that you can earn on an average in a day what your salary will earn you in a month. If you have faith on this and truely believe it, then you start working hard to achieve it. Otherwise you will never have ‘TIME’. It makes me laugh when people say this. How long will keep working to make others wealthy? This is what we all (I mean salaried people) do. We do this day in and day out. But we don’t have any TIME for ourselves. Lets find time for ourselves too.
Sorry, I can go on and on……
Great … Well thought words
I thought you were talking about learning some course
Manish
Hello Manish,
I have read your post and I have done some analysis with the nifty PE sata since 1/1/1999(the PE data is available only since then)
I have done the following analysis(all are paper trades):-
Case 1. SIP in nifty since 1/1/19999 and sold all yesterday…calculated the returns
Case 2. Entered the market at PE of 11 or below. Kept on buying every month until the PE was under 15. Stopped buying ones the PE is above 15. Exit all at PE 27. Re-entry only at PE at 11 and then buy every month until PE is below 15…and so on.
Case3. Case 2 + I shorted the mkt at PE 27 and covered all at PE 11, rest all is same as case 2.
Returns:-
Case1. 18% CAGR i.e. 18% per year cumulated annual compounding for 11 years.
Rs 100 per month became Rs 37000 after 11 years. net profit is Rs 25000(Rs 13200 is investment amount)
Case2. 30% CAGR. Rs 100 per month became 78000 after 11 years.
Case3. 38% CAGR Rs 100 per month became 122000 after 11 years.
Please note that in cases 2 and 3 when I am not able to enter each month, I keep those Rs 100 in Fixed deposits, one my entry level comes(either for short or for long, I liquidate my FDs and enter the markets) so investment amount in all the 3 cases is exactly the same.
In these 11 years there were not more than 4-5 buys and 2 sells in case 2 and 3.
Case 3 outperformed case 2 and case 2 outperformed case 1.
My questions:-
I plan to implement this strategy for my investments. I want to know how safe it is to go short at 27. Isnt it possible that nifty PE might just move into some different range, maybe the next time when the fall comes after say 5 years, maybe nifty PE could be 32 or 33…is that possible? Case 3 gets into a very big risk if this happens.
Regards,
Pushkar
*******************************************************End of Summary************************************************
Attaching below the xls sheets that I have prepared to complete the calculations, summary is already mentioned above, in case you want to see the details, here they are:-
Case2:-
100
1-Jan-99 11.62 890.8 0.11 1
1-Feb-99 12.48 940.15 0.11 1
3-May-99 14.95 970.75 0.10 1
3-May-99 14.95 970.75 0.10 1
0.42
Total invested amount = Rs 11 years*12 months*Rs 100 = 13200Rs.
9-Feb-00 27.4 1689.65 Sold 0.424 nifty @ 1690 = 716Rs.
out of the market in feb 2000, total money left Rs 716 + 700(7 months@100Rs) = 1416Rs.
Enter market in May 2003 amt = Rs 1416 + rs 4000(40 months@100Rs) = Rs 5416
2-May-03 10.86 938.3 5.77
2-Jun-03 11.59 1015.15 0.10
1-Jul-03 12.32 1130.7 0.09
1-Aug-03 12.95 1195.75 0.08
1-Sep-03 15.16 1375.95 0.07
14-May-04 14.66 1711.1 0.47
1-Jun-04 12.14 1508.75 0.07
1-Jul-04 12.9 1518.3 0.07
2-Aug-04 13.69 1618.7 0.06
1-Sep-04 13.67 1628.45 0.06
1-Oct-04 14.84 1727.95 0.06
1-Nov-04 15.03 1800.1 0.06
3-Jan-05 15.57 2059.8 0.10
1-Feb-05 14.34 2008.3 0.05
1-Mar-05 14.88 2060.9 0.05
1-Apr-05 14.84 1993.7 0.05
2-May-05 13.32 1941.3 0.05
1-Jun-05 13.93 2072.4 0.05
1-Jul-05 14.26 2169.85 0.05
1-Aug-05 14.36 2303.15 0.04
1-Sep-05 14.92 2337.65 0.04
1-Nov-05 14.32 2352.9 0.09
7.51
Sold everything in dec 2007@5974 price. 7.51 nifty = Rs 44864 + Rs. 25months@100Rs = 2500Rs.
Total money in dec 2007 out of the market Rs 47364
12-Dec-07 27.69 5974.3
Oct 2008 with Rs 47364 + 10 months@100 = Rs 1000 total = Rs 48364
24-Oct-08 10.99 3234.9 14.95069399
3-Nov-08 13.33 2684.6 0.04
1-Dec-08 11.76 2654 0.04
1-Jan-09 13.3 2922.2 0.03
2-Feb-09 13.12 2849.5 0.04
2-Mar-09 12.7 2762.5 0.04
1-Apr-09 14.49 3108.65 0.03
15.16
CMP on 23 dec 2009 = 5144@15.16 nifty = Rs 77983 + 7 months@100 = Rs 700
Total money out of the market = Rs 78683
Initial investment Rs 13200
recurring ROI:- 30%
flat ROI:- 496%
NIFTY SIP returns:-
Total money out 37551
Recurring ROI:- 18%
Flat ROI:- 184%
Case3:-
100
1-Jan-99 11.62 890.8 0.11 1
1-Feb-99 12.48 940.15 0.11 1
3-May-99 14.95 970.75 0.10 1
3-May-99 14.95 970.75 0.10 1
0.42
Total invested amount = Rs 11 years*12 months*Rs 100 = 13200Rs.
9-Feb-00 27.4 1689.65 Sold 0.424 nifty @ 1690 = 716Rs.
out of the market in feb 2000, total money left Rs 716 + 700(7 months@100Rs) = 1416Rs.
Went short 0.837 nifty @1690
Exited shorts in May 2003 0.837 nifty @938. gain from shorts = 1690-938 * 0.837 nifty = Rs 630
Enter market in May 2003 amt = Rs 1416 + 630 gain from shorts rs 4000(40 months@100Rs) = Rs 6046
2-May-03 10.86 938.3 6.44
2-Jun-03 11.59 1015.15 0.10
1-Jul-03 12.32 1130.7 0.09
1-Aug-03 12.95 1195.75 0.08
1-Sep-03 15.16 1375.95 0.07
14-May-04 14.66 1711.1 0.47
1-Jun-04 12.14 1508.75 0.07
1-Jul-04 12.9 1518.3 0.07
2-Aug-04 13.69 1618.7 0.06
1-Sep-04 13.67 1628.45 0.06
1-Oct-04 14.84 1727.95 0.06
1-Nov-04 15.03 1800.1 0.06
3-Jan-05 15.57 2059.8 0.10
1-Feb-05 14.34 2008.3 0.05
1-Mar-05 14.88 2060.9 0.05
1-Apr-05 14.84 1993.7 0.05
2-May-05 13.32 1941.3 0.05
1-Jun-05 13.93 2072.4 0.05
1-Jul-05 14.26 2169.85 0.05
1-Aug-05 14.36 2303.15 0.04
1-Sep-05 14.92 2337.65 0.04
1-Nov-05 14.32 2352.9 0.09
8.19
Sold everything in dec 2007@5974 price. 8.19 nifty = Rs 48927 + Rs. 25months@100Rs = 2500Rs.
Total money in dec 2007 out of the market Rs 51427
12-Dec-07 27.69 5974.3
shorted 8.6 nifty @ 5974
Exited shorts in oct 2008 8.6 nifty @3234. gain from shorts = 5974-3234 *8.6 nifty = Rs 23564
Oct 2008 with Rs 51427 + 23564 gain from shorts + 10 months@100 = Rs 1000 total = Rs 75991
24-Oct-08 10.99 3234.9 23.4909889
3-Nov-08 13.33 2684.6 0.04
1-Dec-08 11.76 2654 0.04
1-Jan-09 13.3 2922.2 0.03
2-Feb-09 13.12 2849.5 0.04
2-Mar-09 12.7 2762.5 0.04
1-Apr-09 14.49 3108.65 0.03
23.70
CMP on 23 dec 2009 = 5144@23.7 nifty = Rs 121912 + 7 months@100 = Rs 700
Total money out of the market = Rs 122612
Initial investment Rs 13200
recurring ROI:- 38% recurring ROI:- 30%
flat ROI:- 828% flat ROI:- 496%
NIFTY SIP returns:- NIFTY SIP returns:-
Total money out 37551 Total money out 37551
Recurring ROI:- 18% Recurring ROI:- 18%
Flat ROI:- 184% Flat ROI:- 184%
Amazing !! ..
I salute for your work in this area and the results are very encouraging to have a look at
Can you send the xls sheets to my email (manish@jagoinvestor.com) . I will have a detailed look and may be later do some study on my own . I am encouraged by your work .
Now comes the important point , Is this strategy safe or risky ?
you can see that the strategy worked in last 10 yrs very well if you dont think about it and just make sure that you follow the rules without fail . You have not considered the scenarios in detail , So after you keep buying the nifty till PE reaches 15 , there are times when market is still falling . In real life when this happens and when your real money is at stake,its a different situation then
.
The psychological pain is too much. Same thing at the time of shorting it when nifty is at 27 , the market may be going up and down and you are just shorting .. without real money , the analysis is happy , but in real life , its too tough to stand that , investors who can take that make money .
In future the nifty range can expand for sure .. it can go to 30 also , so we should also have other pointers we should use with Nifty PE .
I would say , better target for 25% return and not more and make strategy which is more worth and more probable to succeed .
What do you think?
At the end , you have done amazing work .
Manish
Dear all,
Superb blog!! Great work Manish…. And to all those who are a part of this discussion…. keep it up…. This will really add to value to people like me who are need of quality analysis.
Dear Pushkar,
your work is amazing…. I did the same thing from Jan 1999 and i am telling you I stopped June 1999, The damn thing is so time consuming….. Hats off to you man!!!
Can you send me the excel sheet at iyerarvind19@rediffmail.com…. it will really help…
rgds
Arvind
Arvind
thanks for your appreciation .. join the board and get involved in discussions on the blog .
manish
TATA P/E fund follows the same strategy
even ICICI prudential life insurance co.’s Dynamic P/E Fund uses the same.. but it does look at the trailing P/E… but it tracks the momentum P/E or Forward P/E…..
rgds
Arvind
Arvind
Ohh .. I didnt knew that they are using it
Thanks for the update
Manish
where can i get Historical PE values of individual companies ?
Sujoy
I am not sure if there is any source where you can get that info for free . No idea .
Anyone ?
Manish
Can i get this info by paying ? if yes where & how much is the charge ?
Hi Manish,
Nice I also did the same analysis but was not sure whether this is right or not but after reading your blog I got the confidence. But one doubt im having, I did the same analysis for M&M company & find that after the PE of 24 it has not raised further & from this point PE & Price both has decreased so this is the where we can give the sell Call. But what has happened now after the PE of 24, PE & Price both started decreasing & den again started increasing & reached upto PE of 17. AT this point the PE is less than 22 but its price is more than the Price of 22 PE. Can you please suggest on this.
Dhanashree
Price of share will not always move in line with PE , its just relation .. so the PE is valuation and not a value which should be used to predict price . I would say PE close to 22 should be a SELL signal , considering the historical value is max 24 , make sure you have done this analysis on enough historical data ..
Manish
Hi Manish,
Thanks for covering this topic. It could really be very rewarding if one can track Nifty PE and opt in and out of either shares, or even Mutual Funds (Even ULIP). I have tried it once in my ULIP (a pension plan) – till 26th Dec 2008, I was having my investment invested in the Balanced Fund, but the same day i.e., on 26th Dec 2008 (Nifty PE for the day – 12.5), I switched into Growth Fund (100% Equity), from where, there was no looking back for the Indian Stock Market, and it jumped 100% from There, and so do my investment. Therefore, I succeeded in this PE game. Now I am keenly watching Nifty PE for doing exactly the opposite (i.e., Nifty PE going above 24).
Thanks anyway! Keep posting such good articles.
Vishal
Good , But i think Dont wait for Nifty PE to go to 24 , atleast switch to Balanced , 100% in 1 yr is good , be satisfied
Manish
Good day Manish,
I congratulate you again, this time for a technical issue made easier for the man on the road to understand. There is no end to learning…and earning as well ( By all means possible ) .
These days there are a few wealth managers or pundits of investings , especially in stocks, who post thier portoflio for the general public to track on a daily basis i.e. stocks bought and sold etc. This is especially found in the US markets ( I am not aware of any investement guru doing the same in Europe or India). Could you suggest a few of whome people like me can track to take guidance from thier investement ? Or would it be possible for you to start such a forum ? (Dosen’t necessarily have to be free ) .
Regards,
Aditya
Aditya
I am not sure on this . Will start such a forum at some point in future. For now lets just discuss things over comments area itself .
Manish
Great !
Please tell me how to draw PE in Metastock for Nifty and individual stock. Thanks – Atul
Atul
I am not sure how to do that , you can get enough from google search .
Manish
Hi Manish,
Is there a way/website to find historical PE ratio of individual stock?
e.g. I want to draw a historical chart of L&T’s PE ratio.
Thanks,
ManishJ
Manish
I havent found any website like that till now , which gives individual stock PE’s
Manish
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