Sunday, November 27, 2011

Is it the righ time to start buying Indian stocks?

Enjoying the luxury of some rare free time this Sunday, I decided to work on a historic P/E ratio chart of the Indian stock market. For those of you who do not track the Indian sensex, it has been one of the worst performing indices in the world this year, being down over 20% YTD. It has lost over 11% this current month. So, the idea was to see where the indices stand in the historical context after this huge drop. Well, see for yourself......(Right click on the image and select "view image" for high resolution image)

Median P/E - 18.09
Average P/E - 18.05
Present P/E - 17.05

I would love to see it fall to a P/E ratio of 15 but that's me just being too greedy! Timing the markets exactly on the basis of charts like above is impossible but they do give you a very good idea of oversold and overbought levels. Inspite of the huge decline, the markets don't look as cheap as one would expect as they were overbought last year. I will try to do a similar chart on P/B ratio before the end of the day.

Take care and good luck!


Anonymous said...

I have actually been looking at shorting the Sensex. Have a closer look at the weekly and monthly charts first. I'm not saying it's a bad idea to buy here but could be a big double top in there!!! The weekly 200ma is starting to turn down for the what looks like the first time ever and the monthly 50ma looks like it wants to do the same.

positiontrader said...

I agree with your analysis when it comes to short term Anon. But I am taking a long term view year, 6-7 years to be precise. Am certainly not calling a bottom here, but do think it would be smart to start putting some money into equities here, say 20-30% of the total amount you would like to put. Tax saving mutual funds, in their last year of existence, could be one of the ways to go if one wants to diversify the risk.

Good Luck!

praveen said...

Tax saving mutual funds in last year of existence. could you please elaborate. or link.

positiontrader said...

Hi Praveen,

Under the proposed DTC, which is supposed to come into existence from next the next financial year, ELSS funds no longer come under Section 80C.