Does the Market deserve the levels of 11000 or not? - Detailed Explanation
Introduction:
From the past 2-3 months, Nifty is behaving abnormally and the fresh investors which are also called 'Robinhoods' wouldn't be able to notice this change as they not have seen the previous 10 years of Nifty and how it performed in those years.
Generally, to understand simply we have to keep in mind that every market in this world grows when the average profits and sales of the companies listed in it increases. This has been going from years and is one of the basic principles of the stock market.
But Nowadays if we consider the markets in the world are performing very opposite to the current Economic Scenario. If we see Nifty for example we can observe that the Q1 Results of every company are coming out and they are not up to the mark. So a question comes in mind that why are the markets growing? to know read the whole article.
 |
| Nifty recovery since 2020 Crash |
Banking Sector:
The banking sector in India includes 4 main banks, three PVT Banks and 1 PSU Bank which include Kotak, HDFC, ICICI, and SBI respectively. The banks have shown the results and most of the banks have reduced their profits from the past quarter. And every bank also has made provisions for Covid-19 of around 2000-5000 Crores.
If every bank is making this huge provisions then we can imagine the coming problems in our economy. Even after the results, the share price of these stocks is continuously increasing without any reason.
It means that big people are filling the market with money to trap people and the Robinhoods are investing more and more money for some short-term profits.
World Market:
Dow Jones the most important market for Indian Market. It is the US Stock Market which is pumped by their FED and President Trump, by creating fake news and fake promises. As the elections in America have come closer, the President would never let the market fall during this period. The elections in America are going to be held in November, so till November Trump is never letting the Dow down. But market is always supreme and when there will be time no president or no news can save the market from falling.
 |
| Donald Trump and Jerome Powell |
When the market was fallen President Trump had given $600 to every American as a relief package and the money was given through FED and he is also in talks to give another $600 package after 2 months to every American.
If the FED keeps printing more and more money then the US dollar will be undervalued and if US dollar gets undervalued then every Indian IT sector company will face a huge drop-down in their profits because India's IT companies earn their most of the revenue by exporting their services and it US dollar rates fall then they will also get less money as their salary.
Warren Buffett is Silent:
When such a crisis comes every individual investor has looked up towards the world's greatest investors Warren Buffett and what they are doing to be safe in the crisis. Similarly when the DotCom bubble burst the Ace Investor started buying shares rapidly and made a great holding in them.
 |
| World's Biggest Investor- Warren Buffett |
But during this crash, Warren Buffett was a net seller in the market and sold around every stock in the Airline Industry which he had. He told in his press conference that the market is not on its deserving level and is very costly as per the economic condition.
He is holding a cash pile of around $140 Billion and hasn't invested a single penny in the market. By this, you can imagine how bad the current conditions of the market are for Investing.
What is PE ratio?
PE Ratio means 'Price to Earnings Ratio'. If a company has a PE Ratio of 30 it means that we have to pay 30Rs to earn 1Rs. Similarly whatever the PE is we will earn 1 Rs.
If you 100 Rs for investing in stocks and you came in touch with two stocks having best fundamentals but one of it has a PE of 20 and the other has a PE of 10 that means you will have to pay 100 for the first stock and you will get an earning of 5 Rs. only because the PE is 20 and your investment is 100 while the another stock has a PE of 10 and as per your investment value you will get an earning of 10 Rs for 100 Invested then ofcourse you will invest your money in the second one having a PE of 10.
Now the same principle in applied for Indices and if we consider Nifty, Nifty is made up of 50 companies and the PE of Nifty is the Average PE of the total 50 companies and if we study it we get to know that before the 2008 Financial Crisis happened the PE of Nifty had gone above 28 and the market got expensive and people started selling their stakes in the stocks.
 |
| Credits- equityfriend.com |
Similary, after 2008 the time was come in the 2020 starting and after reaching a peak of 29 PE, Nifty started showing a fall of around and till 17 PE ratio where everybody started investing in the stocks with a bulk quantity and in just a couple of months the Nifty PE got to an all time high of 30.20 on July 31 just 2 days before I made this blog.
Nifty has never seen a PE of 30.20 in all time history and you can see in the chart that whenever the PE Ratio has got up above 25 the Market has showed a proper correction.
So Investors like Warren Buffett know that the market valuation is high and never invest in a market with such high PE Ratio, so if you want to know at which PE ratio what action should be taken read the below chart and start saving your capital as soon as possible.
|
Valuation
Status |
Nifty
PE Ratio Range |
Investment
Descisions |
|
Very Expensive |
25-30 |
High Volume Selling,
Search for shorting opportunities |
|
Expensive |
20-25 |
Book 80% of portfolio and wait for
cheap entry levels to buy |
|
Average |
15-20 |
Buying or Holding is
recommended |
|
Cheap |
12-15 |
High Buying should be done |
|
Very Cheap |
Below 12 |
Rarely happens, High
Volume Buying is recommended |
Thankyou for giving your time and contact us on the follwing number for getting a coaching on Stock Market for FREE - +91 9823899344.
Leave us a comment for your valuable suggestions and your questions.
Thanks Pratik
ReplyDelete