Are Markets Expensive?
The most asked Question to me by Investors these days is, are markets expensive?. Without Data you are just another person with an opinion.
Lets Look at Sensex EPS Growth Data first from last 23 years.
Sensex Normally has show 4-5 Years of Strong Earnings Growth, followed of 7-8 years of Slow earnings growth. Last 8 years Earnings of Sensex has Grown only at 6% i.e. well below the nominal GDP growth. We expect Strong Earning recovery going forward and thats the reason markets are where they are.
The Questions we as Investors need to Ask Ourself is if the earnings growth will deliver for Sensex because if earnings growth is good then there will be money made even from these levels as well but if Earnings don’t deliver we may consolidate like 2010 or Fall like 2000. Low Inflation, Lows Fiscal and Current Account deficit , Low Interest Rates, Liquidity, Stable Government are the positives. Global Markets risk, Still low IIP Growth are the negatives.
I personally feel that worse case downside in nifty is not more than 10% from current levels and earnings will deliver.
We at Stallion Asset are not in business of Predicting Nifty or Market moves weekly or monthly as we strongly believe that to create money you need luck, to create wealth you need consistency.
We at Stallion Asset have taken the easier way, we look at companies which can double their Profits in 2-3 years i.e. growing at 25-35% and have high return of capital employed.
We only Invest in 3 sectors in any given cycle, WE CATCH THE TREND AND MANAGE OUR RISK.
Conclusion – You don’t have to worry much about Sensex being expensive if earnings growth delivers. Sensex had a higher Multiple in March 2006 than it has today, and the Index Doubled in the next 20 Months. We at Stallion Asset remain bullish on the domestic Story and believe the best is yet to come.