March 20, 2017

NIFTY PE in bubble territory?

...the valuations, in terms of Nifty PE Ratio have entered the “Bubble Territory” we consider above 23.50. Already at 23.78 on Friday, market generally remains into the Bubble Territory for 1-4 months.
Last year, we used this concept to identify a major top during Sep’16, when the PE Ratio had entered the Bubble Territory. As can be seen on the chart, the PE Ratio later came down to 21.16 by Dec’16. The Sensex itself lost about 12%, and many individual stocks saw a larger damage.

Based on the history of tops, we also observed that major tops are generally made in the 1st quarter of a Calendar Year. The fact can be checked on the following chart which shows that except during ‘2006 and ‘2016, all major tops were indeed made in the 1st Quarter.

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