Gyan

Opportunity to sell?

Markets are a crazy place and can remain irrational for a very long time time. I feel the same when I see the markets go up every day day with some crazy amount of foreign money coming in. Trillions of dollar of free cash distributed by the governments across the glob is coming to financial assets and inflating by the day.

With an EPS of about 900, we are already at a PE of about 17. Now this may not be very high looking at the average PE of 16.5 clocked by the Indian market in last ten years. We can justify a higher PE by the composition of the index and a high ROE of Indian companies when compared to other emerging market.

My only concern is future EPS growth. The inflation last year was about 5% and real growth of about 9%, so nominal growth of 14%. From there we are looking at an inflation of about 2% and a growth of about 6% this takes it to 8% of nominal growth. This is a significant correction in the growth and if things do not improve the chances are very high that most of the Capex will not come through and we might end up loosing more jobs.

Now this is where I ask if with this kind of growth would the money keep pouring in to keep markets at high valuations?