nifty pe turning high

#1
hello

today i checked the nifty level of 9th august 2016 and it was showing 23.82

also from this very forum a contributor of the forum had tabulated based on sensex history when there is a bubble

i am attaching images to support





for the nifty pe level one can look at the following link

https://www.nseindia.com/products/content/equities/indices/historical_pepb.htm

the members of this esteemed forums are requested to share their views and understanding


rgds


sumit
 

protrade

Well-Known Member
#3
If you want to look at Nifty PE, you should also understand the context.

Do you know Nifty PE hits its highest level just at the end of a bear market?

Typically, in a bear market, earnings take a deep dive, and stocks also collapse as a result. Just when the bull market starts, earnings always lag, because stocks go up in anticipation of earnings increases. But because PE is calculated on Trailing Twelve Months basis, when stocks start going higher, PE shoots up to ridiculous levels.

In May 2009, at the end of the last big bear market, Nifty PE was at over 100!

Even though this looks like a bull market, this is still just a bear market rally. Earnings have not gone up significantly for almost 9 years now. And going ahead, earnings look much better.

It doesn't make sense that you can have a bear market starting at a point where Earnings have been depressed for a long time, and are now looking like they will go up significantly. In fact, I expect Nifty earnings to double in next 36 months, as several critical factors play out fully. Whether it is lower interest rates, commodity prices recovering, bank NPAs getting provisioned fully, major unlisted subsidiaries in telecom, retail, insurance space getting spun off, infrastructure bottlenecks getting eased out, GST rollout helping automobiles and cement companies, lowering of corporate tax rates, seventh pay commission, good monsoons - there are literally a dozen reasons why corporate earnings are likely to see a phenomenal boost.

So dont worry about the PE being high. It's high, because we are still dividing by bear market earnings which are low. Moment earnings growth kicks in, PE ratio will come back down significantly.
 
#4
In May 2009, at the end of the last big bear market, Nifty PE was at over 100!
Really, is it factual ??? or you just used 100 to denote a very high number


Cheers


Happy :)


EDIT: Thought so . . . . whatever the article says the metrics quoted are completely fake

PHP:
Historical NIFTY 50 P/E, P/B & Div. Yield values
For the period 18-05-2009 to 19-06-2009
Date 			P/E
18-May-2009 	20.41
19-May-2009 	20.39
20-May-2009 	20.18
21-May-2009 	19.85
22-May-2009 	19.87
25-May-2009 	19.85
26-May-2009 	19.29
27-May-2009 	20.00
28-May-2009 	20.32
29-May-2009 	20.82
01-Jun-2009 	20.62
02-Jun-2009 	20.60
03-Jun-2009 	20.62
04-Jun-2009 	20.87
05-Jun-2009 	20.93
08-Jun-2009 	20.21
09-Jun-2009 	20.77
10-Jun-2009 	21.24
11-Jun-2009 	21.16
12-Jun-2009 	20.91
15-Jun-2009 	20.47
16-Jun-2009 	20.63
17-Jun-2009 	19.50
18-Jun-2009 	19.03
19-Jun-2009 	19.31
 
Last edited:

protrade

Well-Known Member
#5
Really, is it factual ??? or you just used 100 to denote a very high number


Cheers


Happy :)


EDIT: Thought so . . . . whatever the article says the metrics quoted are completely fake

PHP:
Historical NIFTY 50 P/E, P/B & Div. Yield values
For the period 18-05-2009 to 19-06-2009
Date 			P/E
18-May-2009 	20.41
19-May-2009 	20.39
20-May-2009 	20.18
21-May-2009 	19.85
22-May-2009 	19.87
25-May-2009 	19.85
26-May-2009 	19.29
27-May-2009 	20.00
28-May-2009 	20.32
29-May-2009 	20.82
01-Jun-2009 	20.62
02-Jun-2009 	20.60
03-Jun-2009 	20.62
04-Jun-2009 	20.87
05-Jun-2009 	20.93
08-Jun-2009 	20.21
09-Jun-2009 	20.77
10-Jun-2009 	21.24
11-Jun-2009 	21.16
12-Jun-2009 	20.91
15-Jun-2009 	20.47
16-Jun-2009 	20.63
17-Jun-2009 	19.50
18-Jun-2009 	19.03
19-Jun-2009 	19.31
I tried to find the article which I had read several years back about PE multiples being above 100 - and could only find articles referring to S&P PE multiples being over 100 in May 2009. So it is quite possible that I read the article about S&P 500, but used in context of Nifty - because this is from 7 years back. Sorry for the confusion.

That being said, I also believe there could potentially be another reason for the confusion.

When calculating the PE of an Index, you have 2 choices. Include companies that are making a loss, or exclude companies that are making a loss. If you include companies making losses, you run the risk that net earnings for the Index turn negative - which means, the PE ratio actually becomes meaningless!

If you have a list of Index weights, and Index Constituent PE ratios, with Negative PE ratios listed as "#N/A", you have no choice but to treat those negative PE ratios as ZERO. When you create a Weighted Average PE, that excludes the loss making companies and you get one figure.

However, if you simply add Market Caps of all Index constituents, and divide that by the Sum of the Earnings for all the Constituents, you get a totally different figure, that includes the loss making companies.

In a situation when loss making companies were quite significant, the difference between the two approaches could actually be extremely significant.

I believe in May 2009, this could very well have been the case. If you have some way of getting the constituent PE's and weights, would be interesting to see if this happened.

This clearly happened in S&P - because there were days in 2009 when S&P was trading at 1900 times earnings!!!

http://www.businessinsider.com/sorry-stocks-still-arent-cheap-2009-7?IR=T
 

protrade

Well-Known Member
#6
Assume an index with just 3 stocks A, B, C. All have Price of $100, and all have equal number of shares, just to make calculations easier.

If All the companies have earnings of $5/share, PE of each company is easy to calculate - $100/$5, = 20 PE. and Index PE, however it is calculated, would also yield 20.

If A and B have $5/share, and C has -$10/share how would you calculate PE of Index? Would it be INFINITE? Or would you ignore C, and calculate PE as (300/10)?

Now consider the case of Nifty - where all shares outstanding are not in the Index, only free float is added to Index. And assume all A and B have 50% free float, but C has 100% free float. What would be PE ratio be? You have no choice but to do Sigma(PE(i) * Weight(i)).

Now, consider a freak case, where C makes just $0.01 profit per share, making the PE ratio of C as 100/0.01 or 10000! If you use the formula above, you will get a ridiculous PE for the Index, that is over 3000!

I am just using this example to illustrate how there are different ways to calculate PE of an index, and how the answers can be totally messed up by even ONE STOCK numbers, and whether you adjust for such issues or just ignore these issues.
 

deba72

Well-Known Member
#7
IMO, trailing PE has no value.. to get a real sense of the whole picture only 2/3 years forward PE should be taken into account which is not easy at all...different people have different estimates of forward PE and thats why we have 'n' number of views at any given point of time regarding the future target of the market... if there is consensus,then we don't have a market at all !
 

travi

Well-Known Member
#8
IMO, trailing PE has no value.. to get a real sense of the whole picture only 2/3 years forward PE should be taken into account which is not easy at all...different people have different estimates of forward PE and thats why we have 'n' number of views at any given point of time regarding the future target of the market... if there is consensus,then we don't have a market at all !
He is right!!!
Even in the bearish of mkts, you'll find bulls and vice-versa, very good traders cannot explain this. That is bcos the very trading system makes it work and that's the way it is.
Just stick to your strategies and trade the trend.
Ppl make money on flat days, why not you!
 

padiyaraa

Well-Known Member
#9
Helo Friends,
This chart is from Vivek Patils WEEKLY TA posted last week in icicidirect.
it is Very obvious that even if the PE is in bubble zone,
it can lead a very bullish market for months.
keep stop loss in all your trade and find a nice exit in coming months.
Happy trading. :D
 

protrade

Well-Known Member
#10
Helo Friends,
This chart is from Vivek Patils WEEKLY TA posted last week in icicidirect.
it is Very obvious that even if the PE is in bubble zone,
it can lead a very bullish market for months.
keep stop loss in all your trade and find a nice exit in coming months.
Happy trading. :D
Padiyaraa, the move from 24 PE to 30 PE, is a 20% upside move. If you see this move happening in say 12 months, by then the Earnings itself would be up by almost 20%, because of extremely poor base over last several years. So the bull market top could be almost 40% higher than where markets are today!

If you see markets up 40% in 2 years time, by then the earnings could be up even more. That's the reason its critical to not ignore the low base effect of earnings. Indian corporate earnings have been depressed so significantly, that we will see huge upward move in earnings going forward.

Also, we are in an environment where taxation is moving from Direct Taxes to Indirect Taxes. Over the next 3 years, I expect to see Corporate Tax rates lower by 5%. Jaitley has already announced that for Corporates with profits below Rs 1 Crore, and this will be extended to all corporates in due course. This is part and parcel of improving ease of doing business in India.

The more we switch to indirect taxes, the lesser the evasion will be. It may be a retrograde tax measure - but in the Indian context, this is the best alternative. It will also make India competitive vis-a-vis other countries.

The net impact of such measures is that the E part of PE will rise rapidly. Then you know what will be the effect on the P!

Even more importantly, we cannot directly correlate the situation from past to now - in the past we never had such ridiculous infusions of liquidity. Clearly, once you factor in the liquidity infusions as well, 24 PE doesn't seem to be all that scary today.
 

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