Foreign Institutional Investors have been net sellers in the last two months offloading stocks worth about Rs 24,000 Cr [Aug & Sep] Source: NSDL. Domestic Investors have aggressively bought stocks to ward off free fall in the markets. To us it is a sure sign indication of downward revision of Earnings for FY 2018 from Rs 1626 to Rs 1601 and further down to Rs 1550 as we start getting the September quarter results.
Valuation of Indian Markets:
Instead of the BSE 500, we are now taking into consideration the entire market cap of NSE Listed Stocks.
On 18-Sep-2017 the valuation of all NSE Listed Stocks was 13509863.39 indicating a Market Cap : GDP = 0.83
On 29-Sep-2017 the valuation of all NSE Listed Stocks was 13009863.39 indicating a Market Cap : GDP = 0.80
GDP of 2017 is taken into account for calculation which is 2.454 Trillion USD – IMF Data and 1 USD = Rs 66.
So on the Basis of Market Cap : GDP the Indian Markets are not Overheated as we have envisaged in the past through our tweets,
— Dalal Street Busines (@dalalstreet) July 3, 2014
— Dalal Street Busines (@dalalstreet) November 28, 2014
Valuation of Indian Markets on Trailing P/E Basis
We have also given you a benchmark on when it is a Sure Sign of OVERHEATING – if P/E of SENSEX on Trailing Basis is around 24.
When we Book Profits For Sure – If SENSEX P/E > 24 on Trailing EPS of SENSEX. If Market Cap / GDP > 1.1 Sure Shot Signs of Overheating IMHO
— Dalal Street Busines (@dalalstreet) May 25, 2016
FY 2017 SENSEX EPS / Earnings was Tepid Rs 1320. When SENSEX was at 32,423 (Fortnight ago) the P/E on trailing basis worked out to a whopping 24.5 which according to our theory indicates markets were overheated and signal a SELL which was rightly en-cashed by the FIIs.
What are We Doing Now ?
The earnings of companies are expected to be really tepid going by the Advance Tax figures. SENSEX EPS for FY 2018 will see another downward revision to maybe Rs 1550 and without any substantial Manufacturing / Growth oriented policy in place we wonder how will FY 2019 earnings rise ?
Arrogance of Prime Minister does not work in Economics – This Govt does not want to give road map of Economic reforms as though they are building the next Nuclear Technology even which the US doesn’t have. We are unhappy with Govt spending on infrastructure projects. The single point agenda of Modi to use Income tax department for everything is not going to help companies grow their sales nor earn more. So we are going to exit partial (~20%) long investment positions beginning tomorrow and on every rise. We hope to get a chance to re-enter at lower levels.
NOTE:Please consult your SEBI Registered Financial Advisor before your investment decisions.