Saturday, 10 November 2012

NIfty P/E

P/E ratio is known as price to earning ratio. How to calculate PE? In simple terms lets say if stock is trading at 100 Rs. and its earning per share is 10, then thats share PE ratio is 10 (100/10). Fundamental analysts find this as a very useful tool. If PE ratio is low compared to others then it is considered undervalued.

Now i present a PE chart of nifty and try to analyze when to enter and exit.





















 Lets analyse the above graph for more insight. All time low of Nifty P/E is 10.68 in 2008 during recession. Belows the Nifty P/E lows or support levels in the last 10 years. These are excellent levels to buy. Nifty P/E below 13 is a big BUY any-day.


Date Nifty P/E
1 27-Oct-08 10.68
2 12-May-03 10.84
3 1-Jan-99 11.62
4 24-Jun-04 11.82
5 13-Jan-09 12.16
6 21-Sep-01 12.3
7 29-Apr-05 13.27
8 25-Oct-02 13.83
9 14-Jun-06 14.92
10 18-Oct-00 17.18
11 5-Mar-07 17.2
12 25-May-10 20.06


All time high of Nifty P/E is 28.47 in 2000. Below is the Nifty P/E peaks or resistance levels in the last 10 years. These are best levels to SELL. Nifty P/E above 24 is a big SELL any-day.
Date Nifty P/E
1 11-Feb-00 28.47
2 8-Jan-08 28.29
3 12-Dec-07 27.69
4 13-Oct-10 25.91
5 23-Dec-99 24.22
6 31-Dec-09 23.17
7 9-Feb-01 22.78
8 8-Mar-04 22.01
9 16-Oct-06 21.65
10 31-Dec-03 20.73
11 26-Feb-02 19.14
12 19-Dec-05 17.2                                                                        
 (the above data is taken from http://bse2nse.com)

So any PE level of 13/14 or below it is a "must buy" level.  These are very rare opportunities to by the index at low levels. Levels above 24/25 are usually a period of roaring bull market.  It is a phase where everybody wants to buy shares at any price because they feel left out as prices are continuously going up. Do you remember year 2007?  The housing loan scam just was a reason for markets to correct. Above all, it was Nifty P/E at all time high which posed huge resistance. The housing loan scam was a misbehavior of few individuals and fundamentally nothing changes with respect to the companies in scrutiny. When everybody wants to buy, you need to know that now the time has come for me to exit, and PE ratios reflect that.

Now you would want to know the current PE ratio.....here it is taken from NSE website.

It is 18.43
Here is a link 
http://www.nseindia.com/products/content/equities/indices/historical_pepb.htm
 
Do you know in the month of June 2012 it traded around 16/17 PE when nifty fell below 5000. In fact this whole year PE has been between 16 and 19.
 
Hope this article will help you some way.


















                    

0 comments:

Post a Comment