Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Are You Worried About a Market Crash? - 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?  
The Equitymaster Research Digest

Are You Worried About a Market Crash?
Jun 28, 2017

  • Why this bull market still has legs.
  • But GST can cause problems.
  • The second Smart Money Secrets recommendation is live...
  • ...and the latest Profit Velocity recommendation too.
  • The AU Financiers IPO... should you subscribe?

Last time, I shared why I believe we are getting closer to Sensex 40,000. This is what I wrote.

  • Our three to four-year view is based on a very simple, logical premise: reversion to the mean. It works like this.

    Profit margins for Sensex companies are at decade lows. Studies have proven that profit margins are the most mean-reverting thing in finance. Therefore, if it's down today, it will be up tomorrow and vice-versa.

    This simple insight led us to forecast earnings growth for the Sensex. Assigning a normalised PE multiple of 18 (the long-term average), we arrived at 40,000.

    But now, it seems we are getting there sooner than expected. 32,000 is close. We are less than 30% away. The Sensex PE is almost 23. The way things are going, the day isn't far when there's complete euphoria all around.

    That would be the time to sell.

Now this doesn't mean we will give a ton of sell recommendations when the Sensex gets to 40,000. It also doesn't mean we expect the market to crash when it gets to that landmark.

To Read the Full Story, Subscribe or Sign In

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms