Let’s examine whether Nifty is at the right point of value in comparison to other asset classes like bullion and gold over the 20 years from December 2000 to December 2020.
- Nifty in December 2000 was 1350 and in December 2020 it is at 13500, a clear ten times jump.
- Gold in December 2000 was 4000 and is now 53000 a clear rise of more than 10 times.
- Property values likewise are roughly about 10 times generally with Mumbai and Delhi at under 10 times and other mini-metros at around 10 times.
- The total compounded return in Bank FDs would have shown the value at 5 times only and that’s a clear no keeping money invested as a loan to Banks or corporates.
- This tells us that most of the gains are the effect of growth in money supply as almost all asset classes have grown nearly by the same multiple. In case of higher growth in gold, gets nullified because of dividend returns in the case of Nifty and returns in the shape of rent in the case of properties.
- Now if the above is the case then why invest in risk assets, at least when it’s at its peak. One must expect to gain more for taking a risk in investment and not less.
- In this light who kept picking shares for five years would do well to sell off stocks completely and build back their portfolios after some correction as otherwise they will not have enough by way of returns and will be on their tenterhooks for most of the times in future whenever any negative event happens to take place or environment degenerates.
- My study of large companies individually clearly signals that most of them at too expensive now when looked at how they performed over the last five years in terms of profit growth or added reserves. All of them at present show market-caps of them at more times than the reserves have grown or the PAT or the revenue have grown.
- For example, since FY 2016 to now, Kotakbanks m/cap has risen by 2.6 times while sales have gone up by 1.79 times and PAT by 2.32 time, for Bajfinance the m/cap is now 9 times while sales are at 3.26 times and PAT is 3.8 times. The paint major Asianpaints shows appreciation in m/cap by 2.84 times while sales and PAT stand at 1.42 and 1.54 respectively in the same period. The big one i.e. Reliance shows growth in m/cap at 8.42 times while sales have grown by 2.17 times and PAT by 1.32 times. Let us look at a manufacturing company i.e. Maruti, in its case m/cap is 1.59 times while sales and PAT stand at 1.31 times and 1.05 times. In last 5 years, IT sector company TCS has shown its m/cap go up 2.08 times while sales and PAT are up 1.52 times and 1.33 times and for INFY the same are 2.16 times (M/cap), 1.45 times (Sales) and 1.23 times (PAT).
- The tenth commandment should be your own choice in light of what I told you above. You may examine what your own stocks reveal in terms of market-cap and performance.