Taking cues from Nifty Fifty History- Tone down Expectations

Yesterday, Nifty reported PE crossed 21 for the first time in 3.5 years (last time it was at 21+ PE on 2nd May 2011). See here. 

I did some calculation on how Nifty has behaved in the past from various PE, PB and Div Yield levels (taken all data from NSE website) & here is the analysis-

PE	1yr Return	3yr CAGR	PB	1yr Return	3yr CAGR	Div Yield	1yr Return	3yr CAGR
<12	70%	39%	<2	11%	26%	>3%	82%	55%
12-15	52%	30%	2-3	35%	27%	2.5-3%	55%	43%
15-18	20%	18%	3-4	14%	13%	2-2.5%	53%	36%
18-20	8%	10%	4-5	8%	5%	1.5-2%	32%	19%
20-22	5%	6%	5-6	-3%	5%	1-1.5%	4%	7%
22-24	-7%	1%	6+	-52%	-1%	<1%	-11%	2%
24-26	-29%	-3%
26+	-34%	-9%

So, data clearly says- "Be Greedy when others are Fearful and Be Fearful when others are Greedy."

Currently, Nifty is at 21.1 PE, 3.5 PB and 1.25% div yield.

So, history says-

1) Tone down your expectations. Nifty won't run up fast from here.

2) But 1 yr and 3 yr returns are not into negative territory as yet. So, we are not into bubble territory as yet.

Though, there are early signs of bubble-

1) Small & mid caps are running up fast on (a) One good quarter results (b) Some expert's reco

2) IPOs are coming and getting huge subscription

3) Quality Consistent growers are selling at 30+ PE.

But these are early signs only. Big zero Profit IPOs are yet to come. Valuations are yet to get over-stretched.

So, according to history, Nifty Index should give close to FD kinda returns over next 3 years. 

But, some will say, it's different this time-

1) We are at the bottom of the economic cycle. Q1 GDP growth is encouraging, interest rates should go lower in some time which will give boost to ROEs and PAT growths.

2) Strong government and PM after a long long time.

So, according to me, its time to get a bit cautious; but only a bit!!!

FY15- Where are We Heading?

FY14 has been an amazing year for Indian stock market thanks to strong election verdict and turnaround hopes.

25,000 on BSE and 7,500 on NSE looks too high to someone waiting on the sidelines and looking to enter. Wish someone can forecast where are we heading !! I certainly can't.

But at least we can see where are we now & use that as a guide for decision making (as suggested by Howard Marks in his book The Most Important Thing).

So where are we right now?

1) PE- Nifty standalone PE is 20.4 (See Here) while Sensex standalone PE is 18.5 (See Here).
Consolidated will be somewhat lesser. This is little higher than long term average PE but lower than 2008 peak levels.

2) Mcap to GDP ratio- Market cap of BSE listed companies is 87.8 trillion INR which gives a Mcap to GDP ratio of 79.5%. At 2008 peak, this ratio went up to 103%. See news links here and here.

So, here is the good news- We are not into insane levels yet! However, we are above long term average on Valuation. Hence, don't expect huge up-moves in FY15 like we saw in FY14.
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Now a word of advise-
Ignore all of the above. Everything is just noise.
Just find a portfolio of stocks which can surprise the market by earnings growth or by dividend payout or by special situation (de-merger, de-listing, asset sale, or even stock split) and sit on it.
   

V Mart Retail- A Possible Multibagger...

Wrote on V Mart Retail as a part of Safal Niveshak Value Investing Contest.

Report can be accessed here-

http://www.safalniveshak.com/value-investing-contest-v-mart-retail/


However, please note-

This is not a Buy & Forget Stock. There are things which can go wrong here.
An investor needs to monitor-
1) Sales/ sq foot — A declining trend here means they are struggling to grow in their existing stores / growing too fast for confort.
2) PAT margins — A declining trend here means they are giving too high discounts to attract customers may be due to increased competition or due to lack of customer interest.
3) Inventory Days — A declining trend here means they are not able to sell inventory fast enough & run the risk of obsolescence.
4) Payable Days — A declining trend here means suppliers are taking better terms from the company.

Disclosure- Invested