Should There Be Further Fall #Nifty #BSE #Markets

The Nifty briefly breached the 4900 market on the down side on 14th May 2012 but closed a shade above 4900 . This was the fifth day of fall and mostly on back of European concerns . This level of Nifty is interesting on account of the fact that this represents the P/BV (price/book-value) of 2.88 , PE (price/earnings) of 16.95 and Div. Yield of 1.63% .

Going back by exactly one year the three ratios were P/BV 3.48 , PE 20.60 and Div. Yield 1.22% . On 20/12/2012 P/BV was the lowest in the whole year at 2.71 along with PE of 16.46 and Div. Yield of 1.66%. Since then it has never been lower and as the months go by this should be distancing itself from the low point of 2.71 due to further addition to book values. An additional plus point is that while the P/BV is low (i e better for investor) the other parameters i e PE is also low (i e better for investor) and Div. Yield is  higher ( i e better for investor). When all three are at inviting level historically and over the last one year , the Nifty and markets in general should see their bottoms reached now or in near future.

Morgan Stanley have pointed out and interesting fact that whenever the P/BV has gone lower than 3 in past there has been good jump in returns over the next twelve months. On 15th June 1999 when Sensex was just 3901 and P/BV was 2.9 the return was 19.3% after a year , on 28th My 2004 the Sensex was at 4854 and P/BV had reached at 3 the returns after a years were astonishing 38.7% and like wise when on 10 Oct 2012 Sensex sank to 10527 the P/BV became 2.8 ensuring returns of whopping 58.1% after a year.

When we consider the time period between the above three events , it is five years in the first instance (1999 and 2004) and four years and six months in the second case (May 2004 and Oct 2008)  It has been four and a half year since Oct 2008 already i e time gap allows  repetition of the same phenomenon .

There has been a mini show of the similar kind when post Dec 2012 the Nifty was taken up from low of 4600 (P/BV was under 3) to high of 5600 (i e +20%) and the reversal happened equally fast. So, there may be a remote chance that Nifty once more visits 4600 or even some further low point but then it will be readying itself to pole-vaulting to new high.

Unless enough time elapses these kind of moves in markets may not be taken as naturally happening , however, there have been instances when the operators swayed the markets without the fundamental support. If we consider that big cartels or players will again enter, they may act only in the direction of upping the markets as they will find it hard to press the markets from the low levels obtaining just now.

I talked of markets pole-vaulting and recount the development that may make the conditions ripe enough for it. Firstly the top line of companies has grown by over 100 % since 2008 . This means that assets reflected by book values are productive only.

Secondly, the crude is at high point and may see some correction .

Thirdly , we have already put up with dear money policy for last year and a half and mat see the reversal of the same continuing which began some months back.

Fourthly, the gold prices have been continuously going up since 1999 during which period markets have also been moving up albeit in ‘two step ahead,  one step back’  manner. The gold happens to be at a price point that when it will come down the preference for equities will grow and reversely if it goes up equities would be going up too because this will suggest that monetary expansion is happening

Lastly, the weakening rupee will help exporters and strong rupee will balance the budgetary deficit. We have gold as a balancing factor too to moderate the impact of currency price changes.

There is yet another point i e the return on equity for the corporates is nearly 20% which should be inviting enough for the foreign capital. Inflation is one factor that I can’t judge anything about because it has been always been high in India may remain high for more number of years till we reach next higher level in economic terms.


In light of what I have stated above , it may not be a bad idea to buy stocks when the levels are low but it may prov to be counter productive if entry is made when the markets has already covered half of the expected up-move as was the case in recent past.


I have not tried to sell India story, I have not tried to show any extra-ordinary bullish fervor , I have only recounted some facts. What’s in store , no body can judge with certainty. An investor has to after all find some logical base before committing capital. I have just given that to you decide.




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