10K and more…

The Sensex today touched the 10k mark, rising by 237 points. While the Sensex continues to rise to newer levels and achieving higher growth, analysts continue to remain BULLISH on the Indian market. Every positive movement in the Sensex is followed by a host of market/investment guru proclaiming – “I told you so”. Some of the more sophisticated analysts talk about the secular performance of the Indian industry and attribute stuff like Stabilizing politics, conducive policies, liberalization, infra boom, Capex cycle, benign interest/ inflation rates and blah blah…..

Every person who has been bearish on the Indian markets seems to have been proved wrong with the earlier Sensex targets becoming current “strong support” levels. Well I do not blame anybody as I had earlier mentioned its part of their business – be it analysts, fund managers.

The Nifty is currently trading at 18 times trailing earnings as compared to 14 times about 12 months before.  Generally a steep rise in EPS is marginally cushioned by a decline in earnings multiple, ensuring a moderate rise in indices. However, currently we see that the while the EPS has risen far above the normal trend line so has the P/E multiples, which is clearly signal of a lot of optimism built in the current share prices, even with interest rates slowly being pushed.

Going by Past indices correction it is very clear that the higher the rise, the harder will be the fall. While the probability of a Harsh Mehta, Ketan Parekh kind of event is rare as the multiples aren’t at alarmingly high levels. However, I probably feel an internal political calamity could cause harm. Anyways returns from the current levels are  not going to be great.

So be better be sure of what you are invested into and be ready to hold it for long periods.

1 Comment

  1. I guess you are right about the fact that higher the rise, harder will be the fall. But one thing I feel as pointed out by a gentleman from Karvy, as long as there is skepticism in the market the bull run may not end… but the day there is absolute euphoria you can see the slide coming… beware of extreme joy… cos u stop gurading ur position at such times

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