Markets: Where to from here? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Markets: Where to from here?

Oct 12, 2009

After a strong run during last week, Asian markets have opened this week on a mixed note. While gains are seen in China and Japan, selling pressure marks trading in Hong Kong and Korea. Volatility though remains the key undertone across these markets. Confusion whether the current nascent economic recovery will sustain going forward is the root cause of the same. High valuation of stocks is another big concern that is keeping investors on the tenterhooks. The situation is no different for India, where valuations of stocks have reached near their pre-crisis high levels. And this is without any meaningful change in the fundamentals of corporate India. In effect, a large part of the current rally (that's on since March) can be attributed to expansion in the P/E multiples of stocks and not any real improvement in the earnings momentum.

Take for instance the average P/E (price to earnings) of the 30 BSE-Sensex companies. This has moved from a low of 12 times in March to the current levels of around 21 times trailing 12-monthe earnings.

It is interesting to hear market bulls talk about how distorted it is to be using trailing multiples that include 'slowdown earnings'. They are also making the case of a much improved corporate performance in the September quarter. But this seems a bit far-fetched.

The earnings outlook is far from rosy. While June quarter performance was driven by operational leverage in the form lower raw material and interest cost, we do not see this sustaining going forward. Ultimately companies have to grow sales to grow their profits, which seems tougher to achieve in the current environment, at least if we are to go by our recent interactions with companies across sectors.

Companies are indicating that they are yet to see any meaningful improvement in demand for their products and services. While infrastructure companies are amongst those that sound the most positive these days, even they are not denying that it is government and not private sector spending that is propping up their order books. Industrial capex is yet to show any signs of revival and services companies are yet to restart adding to their manpower base. All, it seems, are keeping their fingers crossed for more sustainable signs of improvement in the macro picture.

But stock markets continue to move up, duly backed largely by foreign money that is seeking greener pastures in emerging markets. FIIs, for instance, have already invested around US$ 12 bn in Indian stocks so far this year.

While we are no good forecasters of the markets' short term movement, what we can clearly see is that greed is gradually making its comeback to the markets. Maybe even you might be putting in some surplus money into stocks now with a view to not miss out on the rally. We believe that stocks have risen too much, too fast, and now a valid case for caution can be made.

Equitymaster requests your view! Post a comment on "Markets: Where to from here?". Click here!

4 Responses to "Markets: Where to from here?"


Oct 24, 2009

Fab Post !

ously .



Oct 22, 2009

good article , do you recommend to sell at least 25% of portfolio ? what was the P/E when market reached 21,000 ? are we at historic high again ?



Oct 13, 2009

Everybody knows this! Put something useful!



Oct 12, 2009

You are right. The greed is back...

Equitymaster requests your view! Post a comment on "Markets: Where to from here?". Click here!

More Views on News

The Gold and Silver Bull Market is Not Over (Fast Profits Daily)

Sep 29, 2020

The last few days have been nerve-racking for bullion traders. Stay calm. The bull market still has a long way to go.

Earned Short Term Capital Gains on Shares? Here's What You Need to Know While Filing ITR (Outside View)

Sep 29, 2020

PersonalFN explains CBDT's clarification regarding scrip wise disclosure in ITR in case of short term capital gain.

This Smallcap is a Must Have Stock in Your Portfolio (Profit Hunter)

Sep 29, 2020

Investing in this smallcap could open doors of huge, long-lasting wealth.

Why the Market May Rally for a Few Days (Fast Profits Daily)

Sep 28, 2020

Why I think the market can rise for the next few days.

My Top Pick for 2021 is Not a Stock. It is Something Much More Powerful (Profit Hunter)

Sep 28, 2020

My top pick for 2021 is something that has helped me and my subscribers beat the stock market by a factor of 2:1.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 29, 2020 (Close)