Sunday, May 27, 2012

Is the Indian stock market "cheap"?

Firstly, I am glad to be back. Secondly, in reply to the numerous mails, yes, I am very much alive. Come to think about it, I should have started with "secondly" rather than "firstly". Now that the formalities are out of the way, let's dive straight into a topic that's close to my heart and even closer to my bank account - the Indian stock market. Before we start, let me state that my strategy for Indian markets is quite different from that for US markets. While for US markets, I am a position or momentum trader, for Indian markets, I am a long term investor believing in the long term Indian growth story.

The mess in the Euro zone, and more importantly in my opinion, our own problems (our = Indian) caused due to policy paralysis and the falling rupee (seems like I chose a wrong time to leave US!) means that Indian markets have been one of the worst performing markets in the last one year. If you have time on your side, that can just mean one thing, opportunity. Following is the chart of historical P/E ratios for the Indian markets. Now, I would never ever recommend investing just on the basis of this one single metric, but it does provide an interesting take on where the markets are currently.

The overbought and oversold zones are marked on the graph (click on it for a better view). In hindsight (you simply gotta love hindsight!), 1998-99 and 2008-09 were great buying opportunities but am sure at that time, they seemed like the end of the world! Where are we currently? Well, nowhere as bad as 1998-99 or for that matter 2008-09, but we are getting close to the oversold zone. The current P/E ratio stands at 16.08 as compared to the average P/E ratio of 17.86. A revisit of the December lows will take us into the oversold zone. 

How to play these markets? Well, that will be the subject matter for another post. This time, it won't take five months, I promise. If you have any thoughts or questions about the Indian stock market, do mail me at positiontrader @ (no gaps!). I am tired of everyone advising to invest in real estate or gold.

Take care and good luck!


PhoenixTrader said...

Welcome back. Good post.

I could not get the graph to open on clicking.

Look forward to the next post on recommendations.

positiontrader said...

Hi PT! Nice to hear from you! Hope you are doing well.

I will look into the graph issue but if you mail me, I can always mail it back to you.

Take care.

positiontrader said...

Check out Hexaware Technologies and let me know what you think of it.

Share market said...

Nice post, Nothing comes cheap in India at this point of time but yes stocks are coming :) ..